The credit sales of a firm is ₹6,40,000. It has a gross profit margin of 15% and a current ratio of 2.5. The firm's current liabilities are ₹96,000; inventories ₹48,000 and cash ₹16,000. Determine the average inventory t

(a) Determine the average inventory to be carried by the firm: Inventory Turnover = Cost of goods sold / Average inventory Given: Gross profit margin = 15% Therefore, Cost of goods sold = Sales * (1 - Gross profit margin) Cost of goods sold = ₹6,40,000 * (1 - 0.15) = ₹6,40,000 * 0.85 = ₹5,44,000 Given: Inventory Turnover = 5 times 5 = ₹5,44,000 / Average inventory Average inventory = ₹5,44,000 / 5 = ₹1,08,800 The average inventory to be carried by the firm is ₹1,08,800.