Question

Calculate Operating Ratio from the following information:
Operating Cost ₹ 6,80,000; Gross Profit 25%; Operating Expenses ₹ 80,000.

Answer 1

$$\begin{gathered} \mathit{G}\mathit{i}\mathit{v}\mathit{e}\mathit{n}: \\ \mathrm{Operating}\mathrm{Cost}=\mathrm{Rs}6,80,000 \\ \mathrm{Operating}\mathrm{Expenses}=\mathrm{Rs}80,000 \\ \mathrm{Gross}\mathrm{Profit}\mathrm{Ratio}=25\% \\ \mathit{F}\mathit{i}\mathit{n}\mathit{d}\mathit{}\mathit{o}\mathit{u}\mathit{t}:\mathrm{Operating}\mathrm{Ratio} \\ \mathrm{Operating}\mathrm{Cost}=\mathrm{Cost}\mathrm{of}\mathrm{Revenue}\mathrm{from}\mathrm{Operations}+\mathrm{Operating}\mathrm{Expenses} \\ 6,80,000=\mathrm{Cost}\mathrm{of}\mathrm{Revenue}\mathrm{from}\mathrm{Operations}+80,000 \\ \mathrm{Cost}\mathrm{of}\mathrm{Revenue}\mathrm{from}\mathrm{Operations}=\mathrm{Rs}6,00,000 \\ \mathrm{Gross}\mathrm{Profit}=\frac{1}{4}\mathrm{th}\mathrm{of}\mathrm{sales}=\frac{1}{3}\mathrm{rd}\mathrm{of}\mathrm{cost} \\ \mathrm{Gross}\mathrm{Profit}=\frac{1}{3}\times 6,00,000=\mathrm{Rs}2,00,000 \\ \mathrm{Gross}\mathrm{Profit}\mathrm{Ratio}=\frac{\mathrm{Gross}\mathrm{Profit}}{\mathrm{Net}\mathrm{Sales}}\times 100 \\ 25=\frac{2,00,000}{\mathrm{Net}\mathrm{Sales}}\times 100 \\ \mathrm{Net}\mathrm{Sales}=\mathrm{Rs}8,00,000 \\ \mathrm{Operating}\mathrm{Ratio}=\frac{\mathrm{Operating}\mathrm{Cost}}{\mathrm{Net}\mathrm{Sales}}\times 100 \\ =\frac{6,80,000}{8,00,000}\times 100=85\% \end{gathered}$$