A company has its inventories of ₹80,000 on 31 march 2021 and on 31 march 2022 its inventories are ₹40,000 more than opening inventory. Revenue from operations of the year is of ₹10,00,000. Rate of Gross Profit is 40%. What will be its inventory turnover ratio?
Answer & explanation
Correct answer: option 4
The correct answer is option 4- 6 times.
Gross profit = 40%
Gross profit = 40% of 10,00,000
= 4,00,000
Cost of Goods Sold = Revenue from operations - Gross profit
Cost of goods sold = 10,00,000 - 4,00,000
= 6,00,000
* As it is given in the question that closing inventory is ₹40,000 more than opening inventory. So, if opening inventory is ₹80,000. Then closing inventory is 40,000 + 80,000 = ₹1,20,000
Average inventory = (opening + closing) / 2
= (80,000 + 1,20,000) / 2
= 1,00,000
Inventory turnover ratio = Cost of goods sold / Average inventory
= 6,00,000/ 1,00,000
= 6 times