A trader carries an average inventory of Rs. 40,000. His inventory turnover ratio is 8 times. If he sells goods at a profit of 20% on Revenue from operations, find out the gross profit.

Let's break the calculation down:Find the Cost of Revenue from Operations (Cost of Goods Sold - COGS):
$$\text{Inventory Turnover Ratio}=\frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}$$
$$8=\frac{\text{Cost of Revenue from Operations}}{40,000}$$
$$\text{Cost of Revenue from Operations}=8\times 40,000=\text{Rs. }3,20,000$$
Understand the Profit Margin relationship:Profit is $20\%$ on Revenue from Operations (Sales).Let Revenue from Operations be $100$.Profit = $20$.Therefore, Cost ($\text{COGS}$) = $\text{Revenue}-\text{Profit}=100-20=80$.This means Cost represents $80\%$ of the Revenue from Operations.Calculate Gross Profit directly from Cost:
$$\text{Gross Profit}=\frac{\text{Cost of Revenue from Operations}}{80}\times 20$$
$$\text{Gross Profit}=\frac{3,20,000}{80}\times 20=4,000\times 20=\text{Rs. }80,000$$