From the following information, calculate Inventory Turnover Rati… - Vidyadip

Question

From the following information, calculate Inventory Turnover Ratio:
Operating Ratio and Working Capital Turnover Ratio: Opening Inventory ₹ 28,000; Closing Inventory ₹ 22,000; Purchases ₹ 46,000; Revenue from Operations, i.e., Net Sales ₹ 80,000; Return ₹ 10,000; Carriage Inwards ₹ 4,000; Office Expenses ₹ 4,000; Selling and Distribution Expenses ₹ 2,000; Working Capital ₹ 40,000.

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Answer

Opening Inventory = 28,000

Closing Inventory = 22,000
Average Inventory = $\frac{\text{Opening Inventory + Closing Inventory}}{2}$
$=\frac{28,000 + 22,000}{2}=₹\ 25,000$
Cost of Goods Sold = Opening Inventory + Purchases + Carriage Inwards - Closing Inventory
= 28,000 + 46,000 + 4,000 - 22,000 = 56,000
Inventory Turnover Ratio $=\frac{\text{Cost of Goods Sold}}{\text{Average Inventory }}=\frac{56,000}{25,000} = 2.24 \ \text{Times}$

Operating Expenses = Office Expenses + Selling and Distribution Expenses

= 4,000 + 2,000 = 6,000
Operating Cost = Cost of Goods Sold + Operating Expenses
= 56,000 + 6,000 = 62,000
Net Sales = ₹ 80,000
Operating Ratio = $\frac{\text{Operating Cost}}{\text{Net Sales}}\times100$
$=\frac{62,000}{80,000}\times100=77.5\%$

Working Capital = 40,000

Working Capital Turnover Ratio = $\frac{\text{Net Sales}}{\text{Working Capital}}$
$=\frac{80,000}{40,000}=2\text{ Times}$
Note: Sales return will not be considered as amount of net sales is provided in the question.

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