Read the following information and answer the following question.
| PARTICULARS | AMOUNT (₹) |
| Credit sales | 2,70,000 |
| Cash sales | 1,50,000 |
| Return Inwards | 20,000 |
| Cost of revenue from operations | 3,00,000 |
| Closing inventory | 45,000 |
| Opening inventory | 55,000 |
Calculate average age of inventory.
Answer & explanation
Correct answer: option 2
The correct answer is option 2 i.e. 2 months.
Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory
= 3,00,000/50,000
= 6 times
Average inventory = (Inventory in the beginning + Inventory at the end)/ 2
= (55,000 + 45,000) / 2
= ₹50,000
Average age of inventory = No of months in a year/ Inventory turnover ratio
= 12/6
= 2 MONTHS