Question 42 Chapter 4 of +2-B - USHA Publication 12 Class

Question 42 Chapter 4 of +2-B

III. Activity Ratios

Inventory Turnover Ratio

42. (Inventory T/O Ratio/G.P. on Cost) From the following detail, calculate the inventory turnover ratio :

Opening Inventory	₹ 50,000
Closing Inventory	₹ 30,000
Sales (Revenue from Operation)	₹ 10,00,000
Gross Profit Ratio 25% on the cost

The solution of Question 42 Chapter 4 of +2-B: –

Inventory Turnover Ratio	=	Cost of goods sold
		Average Inventory

Let assume the Cost of goods sold

Gross profit	=	X		X	25
					100

	=	1	X
		4

Cost of goods sold	=	Sales – Gross Profit
Sales	=	Cost of goods sold + Gross Profit

X	+	1	X	=	₹ 10,00,000
		4

4x + x	=	₹ 40,00,000
5x	=	₹ 40,00,000

x	=	₹ 40,00,000
x	=	5

X or Cost of goods sold	=	₹ 8,00,000

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Average Inventory	=	Opening Inventory – Closing Inventory
Average Inventory	=	2

	=	₹ 50,000 + ₹ 30,000
	=	2

Average Inventory	=	₹ 40,000

Inventory Turnover Ratio	=	₹ 8,00,000
Inventory Turnover Ratio	=	₹ 40,000

Inventory Turnover Ratio	=	20 Times

End of Solution

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