Question

Cost of revenue from operations 6,00,000; Inventory Turnover Ratio 5. Find out the value of opening inventory, if opening inventory is 8,000 less than the closing inventory.

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Answer 1

Given:

• Cost of RFO [Revenue from Operations] = Rs 6,00,000.
• Inventory turnover ratio = 5 times.
• The opening inventory is Rs 8,000 less than the closing inventory.

To find: The value of opening inventory.

Answer:

Inventory turnover ratio = Cost of RFO ÷ Average inventory*

Substituting the data given to us into the above formula,

5 = Rs 6,00,000 ÷ Average inventory

Average inventory = Rs 6,00,000 ÷ 5

Average inventory = Rs 1,20,000

[* - The average inventory is needed to find the opening/closing inventory.]

Average inventory = (Opening inventory + Closing inventory) ÷ 2

Let the closing inventory be assumed as 'x'. The opening inventory would therefore be x - Rs 8,000.

Rs 1,20,000 = (x - Rs 8,000 + x) ÷ 2

Rs 2,40,000 = 2x - Rs 8,000

2x = Rs 2,40,000 + Rs 8,000

2x = Rs 2,48,000

x = Rs 2,48,000 ÷ 2

x = Rs 1,24,000

As per the question, ...

Opening inventory = Closing inventory - Rs 8,000

Opening inventory = Rs 1,24,000 - Rs 8,000

Opening inventory = Rs 1,16,000

Therefore, the opening inventory is Rs 1,16,000.

Answer 2

Answer:

Given:

Cost of RFO [Revenue from Operation= = Rs 6,00,000.

Inventory turnover ratio = 5 times.

The opening inventory is Rs 8,000 les than the closing inventory.

To find: The value of opening inventory.

Solution:-

Inventory turnover ratio = cos t of RFO/

Average inventory*

Substituting the data given to us into the

above formula,

5 = Rs 6,00,000 Average inventory

Average entory = Rs 0, 000/5

Average inventory = Rs 1,20,000

The average inventory is needed to fina the opening/closing inventory

Average inventory =(Openin inventory +

Closing inventory) /2

Let the closing inventory be assumed as 'x'. The opening inventory would therefore be x - Rs 8,000.

Rs ,20,000=(x-Rs 8,000+x)/2

Rs 40,000=2x-Rs 8,000

2x=Rs 2,40,0 + Rs 8,000

2x = Rs 2,48,000

x = Rs 00/2 x = Rs 1,24,000

Given in question by substituting:+

Opening inventory = Closing inventory - Rs 8,000

Opening inventory = Rs 1, 24, 0 - Rs 8,000

Opening inventory= Rs 1,16,000