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The Operating Ratio of a Company is 60%. State Whether 'Purchase of Goods Costing ₹ 20,000' Will Increase, Decrease Or Not Change the Operating Ratio. - Accountancy

Sum

The Operating ratio of a company is 60%. State whether 'Purchase of goods costing ₹ 20,000' will increase, decrease or not change the operating ratio.

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Solution

Operating Ratio = `"Operating Cost"/"Net Sales"` × 100

Also, Operating Cost = Cost of Goods Sold + Operating Expenses

Since cost of goods sold includes purchases as well as closing stock so a purchase of ₹ 20,000 worth of goods will increase the value of both closing stock as well as purchases and hence will lead to change in the value of COGS.

Thus, the operating ratio will remain unchanged.

Concept: Profitability Ratios - Operating Ratio
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