A firm has inventory turnover of 3 and cost of goods sold is Rs. 2,70,000. With better inventory…
Average Inventory equals Cost of Goods Sold divided by Inventory Turnover Ratio. When inventory turnover is 3, average inventory is Rs. 2,70,000 / 3 = Rs. 90,000; when…
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A 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:
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Correct answer A
Average Inventory equals Cost of Goods Sold divided by Inventory Turnover Ratio. When inventory turnover is 3, average inventory is Rs. 2,70,000 / 3 = Rs. 90,000; when turnover improves to 5, average inventory falls to Rs. 2,70,000 / 5 = Rs. 54,000, resulting in a decrease in inventory by Rs. 36,000 (Rs. 90,000 - Rs. 54,000).
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UGC NET Commerce