Question

A trader carries an average inventory of rs. 40,000. his inventory turnover ratio is 8 times. if he sells goods at a profit of 20% on revenue from operations, find out the gross profit.

Answer 1

inventory turnover = cost of goods sold /average inventory 

8=cost of goods sold /40000

cost of goods sold =320000

profit of 20% on sales
therefore profit of 25% on cost of goods sold 

therefore  gross profit = 320000*25%
                                   = 80000

Answer 2

Answer:

His profit will be Rs. 80,000

Explanation:

★ Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

⇒ 8 = Cost of Goods Sold / 40,000

⇒ 8 × 40,000

Cost of Goods Sold = Rs. 3,20,000

• Net Sales = Cost of Goods Sold + Gross Profit

Let,

Revenue from Opreation = x

• Net Sales = Cost of Goods Sold + Gross Profit

⇒ x = 3,20,000 + 20% of x

⇒ x = 3,20,000 + 20x/100

⇒ x = 3,20,000 + 0.2x

⇒ x - 0.2x = 3,20,000

⇒ 0.8x = 3,20,000

⇒ x = 3,20,000/0.8

⇒ x = 4,00,000

Net Sales = Rs. 4,00,000

★ Gross Profit = Net Sales - Cost of Goods Sold

⇒ 4,00,000 - 3,20,000

⇒ 80,000

Gross Profit = Rs. 80,000

Therefore, Gross Profit will be Rs. 80,000