Question

Calculate amount of Gross profit and Revenue from Operation from the following information:

Average Inventory = Rs 8,000 Inventory Turnover Ratio= 6 Times Selling Price = 25% above cost.

Answer 1

Answer:

Stock turnover ratio = Cost of goods sold/Average inventory

6 = Cost of goods sold/ 8000

Cost of goods sold = Rs.48000

Selling price = 25 % above cost

Therefore Gross profit = Cost of goods sold x 25%

= 48000 x 25%

= Rs.12000

Answer 2

Gross profit = Rs. 12,000 and

Revenue from Operation = Rs. 60,000

Explanation:

Inventory Turnover Ratio = 6 Times

★ Inventory Turnover Ratio = Cost of Revenue from Opreation/Average Inventory

Average Inventory = Rs 8,000 (Given)

⇒ 6 = Cost of Revenue from Opreation/8,000

⇒ Cost of Revenue from Opreation = 8,000 × 6

Cost of Revenue from Opreation = 48,000

★ As per the question :

Selling Price = 25% above cost.

So,

⇒ 48,000 + (48,000 × 25/100)

⇒ 48,000 + 12,000

⇒ 60,000

Revenue from Operation = Rs. 60,000

★ Gross profit = Revenue from Operation - Cost of Revenue from Opreation

⇒ 60,000 - 48,000

⇒ 12,000

Gross profit = Rs. 12,000

Therefore,

Gross profit = Rs. 12,000 and

Revenue from Operation = Rs. 60,000