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 = ${\displaystyle \frac{\text{Operating Profit}}{\text{Net Sales}}\times 100}$

${\displaystyle =\frac{150000}{1000000}\times 100=15\%}$

Case II

Operating Profit = Net Sales - Operating Cost

= 600000 - 510000 = 90000

Operating Profit Ratio = ${\displaystyle \frac{\text{Operating Profit}}{\text{Net Sales}}\times 100}$

${\displaystyle =\frac{90000}{600000}\times 100=15\%}$

Case III

Net Sales = 3,60,000

Gross Profit = 20% on Sales

Gross Profit =${\displaystyle \frac{20}{100}\times 360000=72000}$

Operating Profit = Gross Profit - Operating Expenses

= 72000 - 18000 = 54000

Operating Profit ratio = ${\displaystyle \frac{\text{Operating Profit}}{\text{Net Sales}}\times 100}$

${\displaystyle =\frac{54000}{360000}\times 100=15\%}$

Case IV 

Net Sales = 4,50,000

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

= 450000 - 360000 - 22500 = 67500

Operating Profit Ratio = ${\displaystyle \frac{\text{Operating Profit}}{\text{Net Sales}}\times 100}$

${\displaystyle =\frac{67500}{450000}\times 100=15\%}$

Case V

Gross Profit = 20% on Sales

Let Sales = x

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

Sales = Cost Goods Sold + Gross Profit

${\displaystyle x=800000+\frac{20x}{100}}$

or,${\displaystyle \frac{80x}{100}=800000}$

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 = ${\displaystyle \frac{\text{Operating Profit}}{\text{Net Sales}}\times 100}$

${\displaystyle =\frac{150000}{1000000}\times 100=15\%}$