Question
Compute Inventory Turnover Ratio from the following:
✓
Answer
Cost of Revenue from Operations = Opening Inventory + Purchases + Direct Charges (i.e. Wages, Carriage Inwards) - Closing Inventory
₹ 5,60,000 = ₹ 75,000 + ₹ 4,40,000 + ₹ 1,30,000 + ₹ 15,000 - Closing Inventory
Closing Inventory = ₹ 6,60,000 - ₹ 5,60,000 = ₹ 1,00,000
Average Inventory $=\frac{\text{Opening Inventory + Closing Inventory}}{2}$
$=\frac{₹\ 75,000 + ₹\ 1,00,000}{2}=₹\ 87,500$
Inventory Turnover Ratio $=\frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}$
$=\frac{₹\ 5,60,000}{₹\ 87,500}=6.4\text{ times}$
₹ 5,60,000 = ₹ 75,000 + ₹ 4,40,000 + ₹ 1,30,000 + ₹ 15,000 - Closing Inventory
Closing Inventory = ₹ 6,60,000 - ₹ 5,60,000 = ₹ 1,00,000
Average Inventory $=\frac{\text{Opening Inventory + Closing Inventory}}{2}$
$=\frac{₹\ 75,000 + ₹\ 1,00,000}{2}=₹\ 87,500$
Inventory Turnover Ratio $=\frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}$
$=\frac{₹\ 5,60,000}{₹\ 87,500}=6.4\text{ times}$
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