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Question
₹ 3,00,000 is the Cost of Revenue from Operations (Cost of Goods Sold). Inventory Turnover Ratio 8 times; Inventory in the beginning is 2 times more than the inventory at the end. Calculate value of Opening and Closing Inventories
Solution
Inventory Turnover Ratio=`"Cost of goods Sold"/"Average Inventory"`
`8 = 300000/"Average Inventory"`
Average Inventory = Rs 37500
Let Closing Inventory = x
Opening Inventory = 2x + x = 3x
Average Inventory
= `("Opening Inventory+ Closing Inventory")/2`
`37500 = (3x + x)/2`
or, 4x = 75000
x = 18750
Closing Inventory = x = Rs 18,750
Opening Inventory = 3x = 3 ×18,750 = Rs 56,250
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