Question : Opening inventory Rs.1,00,000: Closing inventory Rs.1,50,000: Purchase Rs.6,00,000: Carriage Rs.25,000: Wages Rs. 2,00,000. calculate inventory turnover ratio -
Option 1: 7.4 Times
Option 2: 6.2 Times
Option 3: 7 Times
Option 4: 6.6 Times
Correct Answer: 6.6 Times
Solution : By dividing the cost of items by the average inventory for the same time period, the inventory turnover ratio is derived. A greater ratio typically denotes good sales while a lower ratio generally denotes dismal sales.
Explanation:
cost of goods sold
_____________
AVG stock
Cost of goods sold = Purchase + Wages - Carrige = 600000 + 200000 + 25000 = 825000
Avg. Stock = (Opening inventory + Closing Inventory) / 2
= (100000 + 150000) / 2
= 125000
Hence the inventory turnover ratio is = 825000 / 125000
= 6.6 Times
Hence the correct answer is option 4.
