Opening Inventory ₹1,00,000; Closing Inventory ₹1,50,000; Purchases ₹6,00,000; Carriage ₹25,000; Wages ₹2,00,000. Inventory Turnover Ratio will be :a.6.6 Timesb.6.2 Timesc.7 Timesd.7.4 Times
Question
Opening Inventory ₹1,00,000; Closing Inventory ₹1,50,000; Purchases ₹6,00,000; Carriage ₹25,000; Wages ₹2,00,000. Inventory Turnover Ratio will be :a.6.6 Timesb.6.2 Timesc.7 Timesd.7.4 Times
Solution
To calculate the inventory turnover ratio, we need to use the formula:
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
First, let's calculate the Cost of Goods Sold (COGS):
COGS = Opening Inventory + Purchases + Carriage + Wages - Closing Inventory
COGS = ₹1,00,000 + ₹6,00,000 + ₹25,000 + ₹2,00,000 - ₹1,50,000 COGS = ₹7,75,000
Next, let's calculate the Average Inventory:
Average Inventory = (Opening Inventory + Closing Inventory) / 2
Average Inventory = (₹1,00,000 + ₹1,50,000) / 2 Average Inventory = ₹1,25,000
Now, we can calculate the Inventory Turnover Ratio:
Inventory Turnover Ratio = COGS / Average Inventory Inventory Turnover Ratio = ₹7,75,000 / ₹1,25,000 Inventory Turnover Ratio = 6.2
Therefore, the Inventory Turnover Ratio is 6.2 times. So, the correct answer is option b. 6.2 Times.
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