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.\\\\\n\\implies\\ X=25000+190000-15000\\\\\n=200,000"
Material Y will also be obtained as,
"Y=87000+125000-62500\\\\\n=150,000"
Step 2.
Let us now ascertain the Average Inventory of each material item.
"Average\\ inventory=\\frac{Opening\\ stock+\\ Closing\\ Stock}{2}\\\\\n\\implies\\ X=\\frac{25000+15000}{2}=20,000\\\\\n\nFor Y=\\frac{87,500+62500}{2}=75,000"
Step 3.
Obtain the material/Inventory consumed.
"Inventory\/Material\\ Turnover\\ Ratio\\\\\n = Value\\ of\\ Materials\\ Consumed\\ during\\ the\\ period."
This can be obtained as
"X=\\frac{200,000}{20,000}=10\\ Times\\\\\nY=\\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".
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