Revenue from operations = 4,00,000 Average Inventory = 55,000 Gross Profit Ratio = 10%. Calculate Inventory turnover ratio-

Given information:

• Revenue from Operations = ₹4,00,000
• Average Inventory = ₹55,000
• Gross Profit Ratio = 10%

Finding Cost of Revenue from Operations:

Gross Profit Ratio formula: $\frac{\text{Gross Profit}}{\text{Revenue from Operations}} \times 100$Revenue from OperationsGross Profit​×100

Gross Profit = $\frac{10}{100} \times 4,00,000$10010​×4,00,000 = ₹40,000

Since Gross Profit = Revenue from Operations - Cost of Revenue from Operations

Cost of Revenue from Operations = 4,00,000 - 40,000 = ₹3,60,000

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Calculating Inventory Turnover Ratio:

Inventory Turnover Ratio = $\frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}$Average InventoryCost of Revenue from Operations​

= $\frac{3,60,000}{55,000}$55,0003,60,000​

= 6.55 Times

The Inventory Turnover Ratio uses Cost of Revenue from Operations (not Revenue from Operations) because inventory is valued at cost. Since the Gross Profit Ratio tells us what percentage of sales is profit, we need to remove this profit margin to arrive at the cost figure for proper comparison with inventory.

Correct Option: 3 (6.55 Times)