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From the Following Information Calculate Operating Ratio: Revenue from Operations Rs 6,80,000; Rate of Gross Profit on Cost 25%; Selling Expenses Rs 1,44,000; Administrative Expenses Rs 73,000 - Accountancy

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From the following information calculate operating ratio: Revenue from operations Rs 6,80,000; Rate of Gross Profit on cost 25%; Selling expenses Rs 1,44,000; Administrative expenses Rs 73,000

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Solution

Operating Ratio=`"Operating cost"/"Net sales"xx100`

Operating Cost = Cost of Goods Sold + Operating Expenses

Gross Profit =1/4 th of cost (or 1/5 of sales)

 Gross Profit =`1/5xx680000-136000`

 Let Cost of Goods Sold be 'x'

`136000=1/4xxx`

x = 544000(cost of goods sold)

Operating Cost = 5,44,000 + 1,44,000 + 73,000 = 7,61,000

Operating Ratio=`761000/680000xx100=111.91%`

Note : Operating expenses include selling and adminstrative expenses

Concept: Profitability Ratios - Operating Ratio
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