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Question
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
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
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