Question

Calculate Operating Profit Ratio,in each of the following alternative cases:
Case 1:  Revenue from Operations (Net Sales) ₹ 10,00,000; Operating Profit ₹ 1,50,000.
Case 2:  Revenue from Operations (Net Sales) ₹ 6,00,000; Operating Cost ₹ 5,10,000.
Case 3:  Revenue from Operations (Net Sales) ₹ 3,60,000; Gross Profit 20% on Sales; Operating Expenses ₹ 18,000
Case 4: Revenue from Operations (Net Sales) ₹ 4,50,000; Cost of Revenue from Operations ₹ 3,60,000; Operating Expenses ₹ 22,500.
Case 5: Cost of Goods Sold, i.e., Cost of Revenue from Operations ₹ 8,00,000; Gross Profit 20% on Sales; Operating Expenses ₹ 50,000. 

Answer 1

Case 1 

Operating Profit Ratio = `"Operating Profit"/"Net Sales" xx 100`

`= 150000/1000000 xx 100 = 15%`

Case II

Operating Profit = Net Sales - Operating Cost

= 600000 - 510000 = 90000

Operating Profit Ratio = `"Operating Profit"/"Net Sales" xx 100`

`= 90000/600000 xx 100 = 15%`

Case III

Net Sales = 3,60,000

Gross Profit = 20% on Sales

Gross Profit =`20/100 xx 360000 = 72000`

Operating Profit = Gross Profit - Operating Expenses

= 72000 - 18000 = 54000

Operating Profit ratio = `"Operating Profit"/"Net Sales" xx 100`

`= 54000/360000 xx 100 = 15 %`

Case IV 

Net Sales = 4,50,000

Operating Profit = Net Sales - Cost of Goods Sold - Operating Expenses

= 450000 - 360000 - 22500 = 67500

Operating Profit Ratio = `"Operating Profit"/"Net Sales" xx 100`

`= 67500/450000 xx 100 = 15 %`

Case V

Gross Profit = 20% on Sales

Let Sales = x

∴ Gross Profit = `x xx 20/100 = (20x)/100

Sales = Cost Goods Sold + Gross Profit

`x = 800000 + (20x)/100`

or,`(80x)/100 = 800000`

or, x = 1000000

∴ Sales = 1000000

Operating Cost = Cost of Goods Sold + Operating Expenses

= 800000 + 50000 = 850000

Operating Profit = Net Sales - Cost of goods Sold - Operating Expenses

= 1000000 - 800000 - 50000 = 150000

Operating Profit Ratio = `"Operating Profit"/"Net Sales" xx 100`

`= 150000/1000000 xx 100 = 15%`