Calculate the inventory turnover ratio for the year 2023 from the foll

Question

Calculate the inventory turnover ratio for the year 2023 from the following information and express the same in number of days the average inventory is consumed for each material and comment on the purchasing procedure.

	Material X	Material Y
	Rs.	Rs.
Opening stok	4,000	60,000
Purchases during the period	2,80,000	80,000
Closing stock	20,000	40,000

22 Apr 2024

Answer :

Word Count : 665

To calculate the inventory turnover ratio and express it in terms of the number of days the average inventory is consumed for each material, we'll follow these steps:

1. Calculate the average inventory for each material.
2. Calculate the cost of goods sold (COGS) for each material.
3. Use the formula for inventory turnover ratio.
4. Convert the inventory turnover ratio into days.

Let's start with Material X:

1. Average inventory for Material X:
Average Inventory = (Opening Stock + Closing Stock) / 2
= (4,000 + 20,000) / 2
= 24,000 / 2
= 12,000 Rs

2. Cost of Goods Sold (COGS) for Material X:
COGS = Opening Stock + Purchases - Closing Stock
= 4,000 + 2,80,000 - 20,000
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