The correct answer is B. Decrease in inventory by Rs. 36,000.
Inventory turnover is a measure of how efficiently a company manages its inventory. It is calculated by dividing the cost of goods sold by the average inventory. A higher inventory turnover indicates that a company is selling its inventory more quickly, which is generally considered to be a good thing.
In this case, the company’s inventory turnover is 3, which means that it sells its inventory an average of 3 times per year. If the company can increase its inventory turnover to 5, it will be selling its inventory an average of 5 times per year. This means that the company will need to have less inventory on hand, which would result in a decrease in inventory.
The amount of decrease in inventory can be calculated using the following formula:
Decrease in inventory = (Old inventory turnover – New inventory turnover) * Average inventory
In this case, the decrease in inventory is:
Decrease in inventory = (3 – 5) * 2,70,000 = Rs. 36,000
Therefore, the correct answer is B. Decrease in inventory by Rs. 36,000.
Here is a brief explanation of each option:
- Option A: Increase in inventory by Rs. 54,000. This is incorrect because the company is trying to reduce its inventory, not increase it.
- Option B: Decrease in inventory by Rs. 36,000. This is the correct answer.
- Option C: Increase in cost of goods sold by Rs. 20,000. This is incorrect because the company’s cost of goods sold is not changing.
- Option D: Decrease in inventory by Rs. 90,000. This is incorrect because the decrease in inventory is only Rs. 36,000.