Question
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.Solution
Inventory Turnover Ratio =Cost of Revenue from Operations/Average Inventory Cost of Revenue from operations = 8 × Rs. 40,000 = Rs. 3,20,000 Revenue from operations = Cost of Revenue from operations ×100/80 = Rs. 3,20,000 ×100/80 = Rs. 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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