A trader carries an average inventory of Rs. 60,000. His inventory turnover ratio is 12 times. If he sells goods at a profit of 20% on revenue from operations, find out the gross profit.
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: 1,80,000
Inventory Turnover Ratio = Cost of Revenue from Operations/Average Inventory
12 = Cost of Revenue from Operations/60,000
Cost of Revenue from Operations = 60,000 * 12 = 7,20,000
Revenue from operations = Cost of Revenue from operations* 100/80
= 7,20,000 * 100/80
= 9,00,000
Gross Profit = Revenue from operations – Cost of Revenue from operations
= 9,00,000 - 7,20,000
= 1,80,000