A company maintains average inventory of ₹1,20,000. Its inventory turnover ratio is 6 times. If company sells goods at a gross profit of 25% on revenue from operations. Find out revenue from operations.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) - ₹9,60,000.
Inventory turnover ratio = Cost of revenue from operations / Average inventory
6 = Cost of revenue from operations / 1,20,000
Cost of revenue from operations = 6 x 1,20,000
= 7,20,000
Let revenue from operations = a
Gross profit = 25/100 x a
= a/4
Revenue from operations = Cost of revenue from operations + Gross profit
a = 7,20,000 + a/4
a - a/4 = 7,20,000
3a/4 = 7,20,000
a = 7,20,000 x 4/3
= 9,60,000
So, revenue from operations is ₹9,60,000.