Opening Inventory of a firm is ₹80,000. Cost of revenue from operations is Rs. 6,00,000. Inventory Turnover Ratio is 5 times. Its closing Inventory will be
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Answer:
Rs. 1,60,000
Explanation:
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Given:
- Opening inventory = Rs 80,000
- Cost of RFO [Revenue From Operations] = Rs 6,00,000
- Inventory turnover ratio = 5 times.
To find: The closing inventory.
Answer:
Inventory turnover ratio = Cost of RFO ÷ Average inventory
As per the data given to us,
5 = Rs 6,00,000 ÷ Average inventory
Average inventory = Rs 6,00,000 ÷ 5
Average inventory = Rs 1,20,000
Average inventory = (Opening inventory + Closing inventory) ÷ 2
Substituting the value of the average inventory above,
Rs 1,20,000 = (Rs 80,000 + Closing inventory) ÷ 2
Rs 2,40,000 = Rs 80,000 + Closing inventory
Closing inventory = Rs 2,40,000 - Rs 80,000
Closing inventory - Rs 1,60,000
Therefore, the closing inventory is Rs 1,60,000.
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