A trading firm's average inventory is Rs. 40,000. If the inventory turnover ratio is 6 times and the firm sells goods at a gross profit of 25% on sales, ascertain the gross profit of the firm.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs. 80,000
Inventory turnover ratio is cost of revenue from operations ÷ average inventory, so it gives the cost of goods sold. A gross profit of 25% on sales means cost is 75% of sales.
Cost of revenue from operations = Rs. 40,000 × 6 = Rs. 2,40,000
Sales = Rs. 2,40,000 × 100/75 = Rs. 3,20,000
Gross profit = Rs. 3,20,000 − Rs. 2,40,000 = Rs. 80,000
Taking 25% of the cost (Rs. 60,000) would be gross profit on cost, not on sales.
Note: 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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