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    Question

    XYZ Ltd reported total credit sales of Rs.12,80,000 at a

    gross profit margin of 15%. If the current ratio is 1.75 and inventory turnover of 4 times, what is the average inventory that the company should carry?
    A 320,000 Correct Answer Incorrect Answer
    B 272,000 Correct Answer Incorrect Answer
    C 621,715 Correct Answer Incorrect Answer
    D 731,430 Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Inventory Turnover = CoGS/Average inventory Or Average Inventory = COGS/inventory Turnover COGS = Sales – gross profit             = 12,80,000 – 15% of 12,80,000             = 1,088,000 So Average inventory = 1088000/4 = 272,000

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