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(i) Revenue from Operations: Cash Sales Rs. 4,20,000; Credit Sales Rs. 6,00,000; Return Rs. 20,000. Cost of Revenue from Operations or Cost of Goods Sold Rs. 8,00,000. Calculate Gross Profit Ratio. (ii) Average Inventory Rs. 1,60,000; Inventory Turnover Ratio is 6 Times; Selling Price 25% above cost. Calculate Gross Profit Ratio. (iii) Opening Inventory Rs. 1,00,000; Closing Inventory Rs. 60,000; Inventory Turnover Ratio 8 Times; Selling Price 25% above cost. Calculate Gross Profit Ratio.

SOLUTION

Net Sales = Cash Sales + Credit Sales – Sales Return
= 4,20,000 + 6,00,000 – 20,000
= 10,00,000

Cost of Goods Sold = 8,00,000
Gross Profit = Net Sales – Cost of Goods Sold 
= 10,00,000 – 8,00,000
= 2,00,000

Gross Profit Ratio. = Gross Profit /  Net Sales×100
= 2,00,000 / 10,00,000 × 100
= 20%

(ii) Average Stock = 1,60,000
Stock Turnover Ratio = 6 Times
Stock turnover ratio = Cost of Goods sold / Average Stock
8 = Cost of Goods sold / 3,20,000
Cost of Goods sold = 9,60,000

Gross Profit = 25% on Cost
Gross Profit = 25 / 100 × 9,60,000
=2,40,000

Net Sales = Cost of Goods sold +Gross Profit
Gross Profit Ratio. = Gross Profit /  Net Sales×100
= 2,40,000 / 12,00,000 × 100
= 20%

 (iii) Opening Inventory = 1,00,000
Closing Inventory = 60,000
Average Inventory= Opening Inventory  / Closing Inventory
Average Inventory = 1,00,000 / 60,000
= 1.66

Inventory turnover ratio= Cost of Goods sold /  Average Inventory
Gross Profit = 25% on Cost
Gross profit= 25 / 100 × 6,40,000 = 1,60,000

Net Sales = Cost of Goods sold +Gross Profit
= 6,40,000 + 1,60,000
= 8,00,000

Gross Profit Ratio = Gross Profit Net Sales × 100 
= 1,60,000 / 8,00,000 × 100 
= 20%

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