Question

A trading firm’s average stock is Rs. 20,000 (cost). If the stock turnover ratio is 8 times and the firm sells goods at a profit of 20% on sales, ascertain the profit of the firm.

Answer 1

$StockturnoverRatio=\frac{CostofGoodsSold}{Averagestock}8=\frac{CostofGoodsSold}{20,000}CostofGoodsSold=Rs.20,000\times 8=Rs.1,60,000$

Let sale price be Rs. 100, then profit is Rs. 20.
Hence, the Cost of Goods Sold = 100 – 20 = 80
If the Cost of Goods Sold is 80 then Sales = 100
If the Cost of Goods sold is Rs. 1, then Sales $=\frac{100}{80}$
If the Cost of Goods sold is Rs. 1,60,000,
then Sales$=\frac{100}{80}\times 1,60,000=Rs.2,00,000$

Profit = Sales – Cost of Goods Sold
= Rs. 2,00,000 – Rs. 1,60,000 = Rs. 40,000