Question
Given the following information, calculate the Inventory
Turnover Ratio: Cash Revenue from Operations: ₹50,000 Credit Revenue from Operations: ₹1,50,000 Gross Profit: 25% on Cost Closing Inventory: 3 times the Opening Inventory Opening Inventory: 10% of Cost of Revenue from OperationsSolution
The Inventory Turnover Ratio is calculated using the formula: Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory Calculation of Cost of Revenue from Operations: If Gross Profit is 25% on Cost, then for every ₹125 of Revenue, the Cost of Revenue is ₹100. Given Revenue from Operations = ₹2,00,000 (₹50,000 Cash + ₹1,50,000 Credit), the Cost of Revenue = ₹1,60,000. Calculation of Opening Inventory: Opening Inventory = 10% of Cost of Revenue = ₹1,60,000 × 10% = ₹16,000 Calculation of Closing Inventory: Closing Inventory = 3 × Opening Inventory = 3 × ₹16,000 = ₹48,000 Average Inventory: Average Inventory = (Opening Inventory + Closing Inventory) / 2 = (₹16,000 + ₹48,000) / 2 = ₹32,000 Inventory Turnover Ratio = ₹1,60,000 / ₹32,000 = 5 times
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