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Inventory Turnover Ratio 5 times; Cost of Revenue from Operations (Cost of Goods Sold) Rs. 18,90,000. Calculate Opening Inventory and Closing Inventory if Inventory at the end is 2.5 times more than that in the beginning.

SOLUTION

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
5 = 18,90,000 / Average Inventory
Average Inventory = Rs. 3,78,000

Let Opening Inventory = x
Closing Inventory = 2.5x + x = 3.5 x
Average Inventory = (Opening + Closing Inventory) / 2
3,78,000 = (x + 3.5x) / 2
or, 4.5x = 7,56,000
or, X = 1,68,000
Opening Inventory = x = Rs 1,68,000

Closing Inventory = 3.5 x
= 3.5 × 1,68,000
= Rs 5,88,000

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