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.

• A. 6 times
• B. 3 times
• C. 4 times
• D. 5 times

Answer 1

Answer: (C)

4 times

Inventory turnover ratio = Cost of goods sold ( WN 1)

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Average inventory (WN 2)

= 3,60,000

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90,000

= 4 Times

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

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2

= 90,000.

Closing inventory is 20,000 more than opening inventory hence opening inventory is 1,00,000 - 20,000 = 80,000.