A trader carries an average inventory of Rs. 40,000. His inventory turnover ratio is 8 times. If he sells goods at a profit of 20% on Revenue from operations, find out the gross profit.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs. 80,000
Inventory turnover ratio = cost of revenue from operations ÷ average inventory. A profit of 20% on revenue from operations means cost is 80% of revenue, not of cost.
Cost of revenue from operations = 8 × Rs. 40,000 = Rs. 3,20,000
Revenue from operations = Rs. 3,20,000 × 100/80 = Rs. 4,00,000
Gross profit = Rs. 4,00,000 − Rs. 3,20,000 = Rs. 80,000
Note: This question is from NCERT (2026-27). NTA sets numerical questions from NCERT too, so do not ignore NCERT while practising numericals.
NCERT (2026-27 edition):
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