As per the information given below, what will be the amount of Gross Profit?
Average Inventory = Rs. 80,000
Inventory Turnover Ratio = 8 times
Selling Price = 20% above revenue from operations
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 1,60,000
Inventory turnover ratio = cost of revenue from operations ÷ average inventory, and gross profit = revenue from operations − cost of revenue from operations. So the cost is found first and the margin after it.
Cost of revenue from operations = 8 × Rs. 80,000 = Rs. 6,40,000
Gross profit is 20% of revenue, so the cost is 80% of revenue
Revenue from operations = Rs. 6,40,000 ÷ 80% = Rs. 8,00,000
Gross profit = Rs. 8,00,000 − Rs. 6,40,000 = Rs. 1,60,000
Note 1: It seems that there is a mistake in the original NTA paper, which prints “Selling Price = 20% above revenue from operations” when it should read “Gross Profit = 20% of revenue from operations”. The selling price of the goods is the revenue from operations itself, so it cannot be 20% above itself. The question can still be solved: only a gross profit of 20% of revenue gives a figure among the options, Rs. 1,60,000, while a mark-up of 20% on cost would give Rs. 1,28,000, which is not there. The book’s own exercise that this question follows reads “Selling price = 25% above cost”. That slip belongs to the paper, not to you.
Note 2: NTA picked this question from an NCERT (2026-27) exercise and changed the figures. Do not ignore NCERT while practising numericals.
NCERT (2026-27 edition):
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