If Revenue from Operations is ₹8,00,000; Gross Profit Ratio 25%; Opening Inventory ₹1,00,000; Closing Inventory ₹60,000 then what is the Inventory Turnover Ratio of the company?
Answer & explanation
Correct answer: option 2
The correct answer is option 2- 7.5 times.
Gross Profit Ratio = Gross Profit/Net Revenue of Operations X 100.
25 = (Gross profit/8,00,000) X100
Gross profit = 25 x 8,00,000/100
Gross profit = 2,00,000
Revenue from Operations = Cost of revenue from Operations + Gross profit
8,00,000 = Cost of Revenue from Operations + 2,00,000
Cost of Revenue from operations = 8,00,000 - 2,00,000
= 6,00,000
Average Inventory = (Opening inventory + Closing inventory)/2
= (1,00,000 + 60,000)/2
= 1,60,000/2
= 80,000
Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory
= 6,00,000/80,000
= 7.5 times