Question :
From the following data, calculate Inventory Turnover Ratio:
Total Sales Rs. 5,00,000; Sales Return Rs. 50,000;
Gross Profit Rs. 90,000; Closing Inventory Rs. 1,00,000; Excess of Closing Inventory over opening inventory Rs. 20,000.
Option 1: 6 Times
Option 2: 4 Times
Option 3: 3 Times
Option 4: 5 Times
Correct Answer: 4 Times
Solution :
Inventory turnover ratio = Cost of goods sold ( WN 1)
----------------------------------------
Average inventory (WN 2)
= 3,60,000
-----------------
90,000
= 4 Times
Hence the correct answer is option 2.
Working notes:-
1) Cost of goods sold = Gross sales - (Sales return + gross profit)
= 5,00,000 - (50,000 + 90,000)
= 3,60,000.
2) Average Inventory = 1,00,000 + 80,000
-------------------------
2
= 90,000.
Closing inventory is 20,000 more than opening inventory hence opening inventory is 1,00,000 - 20,000 = 80,000.
