If opening capital is 120000cist of revenue from operations is 1000000and inventory turnover ratio is 5times then closing inventory will be
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Given:
- Opening inventory= Rs 1,20,000
- Cost of RFO [Revenue from Operations] = Rs 10,00,000
- Inventory turnover ratio is 5 times.
To find: The closing inventory.
Answer:
Inventory turnover ratio = Cost of RFO ÷ Average inventory*
Using the data we have,
5 = Rs 10,00,000 ÷ Average inventory
Average inventory = Rs 10,00,000 ÷ 5
Average inventory = Rs 2,00,000
* - Average inventory = (Opening inventory + Closing inventory) ÷ 2
Using the data we have,
Rs 2,00,00 = (Rs 1,20,000 + Closing inventory) ÷ 2
Rs 4,00,000 = Rs 1,20,000 + Closing inventory
Closing inventory = Rs 4,00,000 - Rs 1,20,000
Closing inventory = Rs 2,80,000
Therefore, the closing inventory is Rs 2,80,000
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