Answer to Question #135174 in Accounting for Manisha

Question

Calculate the material turnover ratio for the yers 199 from the following details:

(mx) (my)
Opening stock 25,000 87,500
Closing stock 15,000 62,500
Purchase 1,90,000 1,25000

Answer 1

$$Solution$$

To calculate the material turnover ratio also referred to as inventory turnover ratio, the following steps are followed.

Step 1.

Calculate material consumed for both X and Y.

$Material\ Consumed=Opening\ stock+\ Purchases\ -\ Closing\ stock.\\ \implies\ X=25000+190000-15000\\ =200,000$

Material Y will also be obtained as,

$Y=87000+125000-62500\\ =150,000$

Step 2.

Let us now ascertain the Average Inventory of each material item.

$Average\ inventory=\frac{Opening\ stock+\ Closing\ Stock}{2}\\ \implies\ X=\frac{25000+15000}{2}=20,000\\ For Y=\frac{87,500+62500}{2}=75,000$

Step 3.

Obtain the material/Inventory consumed.

$Inventory/Material\ Turnover\ Ratio\\ = Value\ of\ Materials\ Consumed\ during\ the\ period.$

This can be obtained as

$X=\frac{200,000}{20,000}=10\ Times\\ Y=\frac{150,000}{75,000}=2Times$

 In the above problem inventory/Material Turnover Ratio is highest in case of material X and lowest in case of Material $Y$.