Question
Download Solution PDFA firm has inventory turnover of 3 and cost of goods sold is Rs. 2,70,000. With better inventory management, the inventory turnover is increased to 5. This would result in
Answer (Detailed Solution Below)
Decrease in inventory by Rs. 36,000
Detailed Solution
Download Solution PDFInventory Turnover Ratio = Cost Of Goods Sold / Average Inventory.
∴ 3 = 270000 / Average Inventory
∴ Average Inventory = 270000/3 = Rs. 90,000.
If The Inventory Turnover Ratio Is Increased To 5 then,
5 = 270000 / Average Inventory
∴ Average Inventory =270000/5 = Rs. 54,000.
∴ Increase in inventory turnover ratio = Rs 90,000 - Rs. 54,000 = Rs. 36,000
Therefore, by increase in inventory turnover ratio, average inventory of the firm will decrease by Rs. 36,000.
Last updated on Jun 12, 2025
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