Question
Calculate Inventory Turnover Ratio from the following:
✓
Answer
Gross Profit is 25% on cost. Therefore goods costing ₹ 100 is sold for ₹ 125.
Hence, if Revenue from Operations are ₹ 125.
Cost of Revenue from Operations = ₹ 100
If Revenue from Operations are ₹ 10,00,000
Cost of Revenue from Operations $=\frac{100}{125}\times10,00,000=₹\ 8,00,000$
Opening Inventory is 10% of Cost of Revenue from Operations
$\therefore$ Opening Inventory $=\frac{10}{100}\times8,00,000=₹\ 80,000$
Closing Inventory $=80,000\times3=₹\ 2,40,000$
Average Inventory $=\frac{\text{Opening Inventory + Closing Inventory}}{2}$
$=\frac{80,000 + 2,40,000}{2}=₹\ 1,60,000$
Inventory Turnover Ratio $=\frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}$
$=\frac{8,00,000}{1,60,000}=5\text{ times}$
Hence, if Revenue from Operations are ₹ 125.
Cost of Revenue from Operations = ₹ 100
If Revenue from Operations are ₹ 10,00,000
Cost of Revenue from Operations $=\frac{100}{125}\times10,00,000=₹\ 8,00,000$
Opening Inventory is 10% of Cost of Revenue from Operations
$\therefore$ Opening Inventory $=\frac{10}{100}\times8,00,000=₹\ 80,000$
Closing Inventory $=80,000\times3=₹\ 2,40,000$
Average Inventory $=\frac{\text{Opening Inventory + Closing Inventory}}{2}$
$=\frac{80,000 + 2,40,000}{2}=₹\ 1,60,000$
Inventory Turnover Ratio $=\frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}$
$=\frac{8,00,000}{1,60,000}=5\text{ times}$
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