Question
Hope Ltd made total sales of Rs.500,000 of which 70%
were credit sales. ABC Ltd reported gross profit of Rs.200,000 that year. If the opening and closing inventory was Rs.40,000 and Rs.60,000 respectively, what is the inventory turnover ratio of ABC Ltd?Solution
Inventory turnover ratio = cost of goods sold (COGS) / average inventory COGS = Sales- gross profit = 500,000-200,000= 300,000 Average Inventory = (Opening inventory + Closing inventory) / 2 = (40,000+60,000)/2 = 50,000 Inventory turnover ratio =300,000/50,000= 6
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