Question

From the following information, calculate the Operating Ratio:

Revenue from Operations ₹ 10,00,000; Cost of Revenue from Operations ₹ 4,00,000; Selling Expenses ₹ 80,000; Administrative Expenses ₹ 1,20,000. Goods were sold at a profit of 25% on cost.

Answer 1

Calculation of Operating Cost:

Operating Expenses include Selling Expenses and Administrative Expenses.

\[\text{Operating Cost} = \text{Cost of Revenue from Operations} + \text{Selling Expenses} + \text{Administrative Expenses}\]

$$\text{Operating Cost} = ₹ 4,00,000 + ₹ 80,00,000 + ₹ 1,20,000$$

$${\text{Operating Cost} = ₹ 6,00,000}$$

Calculation of Operating Ratio:

$$\text{Operating Ratio} = \left( \frac{\text{Operating Cost}}{\text{Revenue from Operations}} \right) \times 100$$

$$\text{Operating Ratio} = \left( \frac{6,00,000}{10,00,000} \right) \times 100 = 60\%$$

Operating Ratio = 60%