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Question
₹2,00,000 is the Cost of Revenue from Operations (Cost of Goods Sold), during the year. If Inventory Turnover Ratio is 8 times, calculate inventories at the end of the year. Inventories at the end is 1.5 times that of in the beginning.
Solution
Inventory Turnover Ratio=`"Cost of goods Sold"/"Average Inventory"`
`8 = 200000/"Average Inventory"`
Average Inventory = Rs 25000
Let Opening Inventory = x
Closing Inventory = 1.5 × x = 1.5 x
Average Inventory
= `("Opening Inventory + Closing Inventory")/2`
`25000 = (x + 1.5x)/2`
or, 2.5x = 50000
or, x = 20000
Opening Inventory = x = Rs 20,000
Closing Inventory = 1.5 x = 20,000 × 1.5 = Rs 30,000
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Particulars |
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