Question

Calculate Inventory Turnover Ratio from the following information :
Revenue from Operations
₹20,00,000,
Gross Profit
20% of Revenue from Operations,
Purchases
₹16,80,000,
Closing Stock
₹3,60,000,
[Ans. Inventory Turnover Ratio 5 times)
[Hint : Opening Stock ₹2,80,000]

Answer 1

Explanation:

Solution :

Revenue from Operations =₹ 20,00,000

Gross Profit = 20% of Revenue from Operations

=> 20,00,000 × 20/100

=> 4,00,000

Gross Profit =4,00,000

COGS = 20,00,000 - 4,00,000

COGS = 16,00,000

Cost of Goods Sold = Opening Stock + Purchases - closing stock

=> 16,00,000 = Opening Stock + 16,80,000 - 3,60,000

=> 16,00,000 = Openig Stock + 13,20,000

=> Opening stock = 16,00,000 - 13,20,000

Opening stock = 2,80,000

Average Inventory = Opening Inventory +closing Inventory/2

=> 2,80,000 + 3,60,000/2

=> 6,40,000/2

Average Inventory = 3,20,000

Inventory Turnover Ratio = COGS / Average Inventory

=> 16,00,000/3,20,000

=> 5

Inventory Turnover Ratio = 5 times

Hence,Inventory Turnover Ratio = 5 times.

Answer 2

Answer:

Inventory Turnover Ratio =   5 times .

Explanation:

★ Inventory Turnover Ratio =

$\sf{\longrightarrow{\dfrac{Cost \: of \: Revenue \: from \: Opreation}{Average \: Inventory}}}$

Gross Profit = 20% of Revenue from Operations

$\longrightarrow$ 20,00,000 × 20/100

$\longrightarrow$ 4,00,000

Gross Profit = 4,00,000

Cost of Revenue from Opreation = Revenue from Operations - Gross Profit

$\longrightarrow$ 20,00,000 - 4,00,000

$\longrightarrow$ 16,00,000

Cost of Revenue from Opreation = 16,00,000

$\longrightarrow$ 16,00,000 = Opening Stock + Purchases - Closing Stock

$\longrightarrow$ 16,00,000 = Opening Stock + 16,80,000 - 3,60,000

$\longrightarrow$ 16,00,000 = Opening Stock + 13,20,000

$\longrightarrow$ 16,00,000 - 13,20,000 = Opening Stock

$\longrightarrow$ 2,80,000 = Opening Stock

★ Average Inventory :

$\sf{\longrightarrow{\dfrac{Ope.ning \: Stock \: + \: Closing \: Stock}{2}}}$

$\sf{\longrightarrow{\dfrac{2,80,000 \: + \: 3,60,000}{2}}}$

$\sf{\longrightarrow{\dfrac{6,40,000}{2}}}$

$\longrightarrow \: 3,20,000$

Average Inventory = 3,20,000

★ Inventory Turnover Ratio =

$\sf{\longrightarrow{\dfrac{Cost \: of \: Revenue \: from \: Opreation}{Average \: Inventory}}}$

$\longrightarrow{\sf{\dfrac{16,00,000 }{3,20,000} \: = \: 5}}$

Inventory Turnover Ratio = 5 times

∴  Inventory Turnover Ratio =   5 times .