Question

What is the Inventory turnover ratio, when the following is given? cost of revenue from operation Rs. 1,50,000; closing inventory Rs. 60,000; excess of closing inventory over opening inventory Rs. 20,000.

Answer 1

Inventory Turnover Ratio = CRFO/Average Inventory

CRFO = 1,50,000

Closing inventory = 60,000

Opening inventory is 20,000 more than closing inventory.

So,

Opening inventory = 60,000+20,000

= 80,000.

Since, Opening Inventory and Closing Inventory are been found, now Average Inventory have to be calculated.

Average Inventory = Opening inventory + Closing Inventory / 2

= 80,000 + 60,000/2

= 1,40,000/2

= 70,000

Inventory Turnover Ratio = CRFO/Average Inventory

= 1,50,000/70,000

= 2.14 times