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.

1,80,000

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