CMA Intermediate · Financial Management and Business Data Analytics · Inventory Management
Sundaram Traders had opening inventory of Rs 2,40,000 and closing inventory of Rs 3,60,000. Cost of goods sold for the year was Rs 21,00,000. What is the inventory turnover ratio?
The inventory turnover ratio is 7 times, because cost of goods sold of Rs 21,00,000 divided by average inventory of Rs 3,00,000 gives 7. Average inventory is the mean of opening and closing stock, not closing stock alone.
- A5.83 times
- B7 timesCorrect
- C8.75 times
- D10.5 times
Explanation
Average inventory = (2,40,000 + 3,60,000)/2 = Rs 3,00,000. Turnover = 21,00,000/3,00,000 = 7 times. Using closing inventory alone gives 5.83 times, which ignores the average base.
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