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A trader carries an average inventory of...

A trader carries an average inventory of Rs. 40,000. His inventory turnover ratio is 8 times. If he sells goods at a profit of `20%` on Revenue from operations, find out the gross profit.

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Inventory Turnover Ratio `=("Cost of Revenue from Operations")/("Average Inventory")`
`8=("Cost of Revenue from Operations")/(Rs.40,000)`
`:.` Cost of Revenue from operations `= 8 xx Rs. 40,000`
= Rs. 3,20,000
Revenue from operations = Cost of Revenue from operations `xx(100 )/(80)`
= Rs. `3,20,000xx (100)/(80)` = 4,00,000
Gross Profit = Revenue from operations – Cost of Revenue from operations
Rs. 4,00,000-Rs. 3,20,000=Rs. 80,000
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A trading firm’s average inventory is Rs. 20,000 (cost). If the inventory turnover ratio is 8 times and the firm sells goods at a profit of 20% on sales, ascertain the profit of the firm.

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Knowledge Check

  • Average Inventory Rs. 60,000, Inventory Rs. Turnover Ratio 8, Gross Profit 20% on revenue from operations, what will be Gross Profit?

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  • What will be the amount of Gross Profit, if revenue from operations are Rs. 6,00,000 and Gross Profit Ratio is 20% of revenue from operations?

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