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Calculate Operating Ratio from following information Revenue from Operations ` 5,00,000, Sales Returns ` 1,00,000, Rate of Gross loss on Cost 20%, Wages `20,000, Office Expenses ` 75,000, Selling Expenses ` 50,000, Interest on Borrowings ` 20,000.?
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Calculate Operating Ratio from following information Revenue from Oper...
Calculation of Operating Ratio
- Revenue from Operations: 5,00,000
- Sales Returns: 1,00,000
- Gross loss on Cost: 20%
- Wages: 20,000
- Office Expenses: 75,000
- Selling Expenses: 50,000
- Interest on Borrowings: 20,000
Explanation
Operating Ratio is a financial ratio that is used to measure the operational efficiency of a business. It is calculated by dividing the operating expenses of a business by its net sales revenue. The lower the operating ratio, the better it is for the business as it indicates that the business is operating efficiently and is able to generate more revenue from its operations.
Formula for Operating Ratio
Operating Ratio = (Operating Expenses / Net Sales) x 100
Calculation of Operating Expenses
- Gross Profit = Net Sales - Cost of Goods Sold
- Cost of Goods Sold = Net Purchases + Direct Expenses
- Net Purchases = Gross Purchases - Purchase Returns
- Direct Expenses = Wages + Office Expenses + Selling Expenses
- Cost of Goods Sold = (Gross Purchases - Purchase Returns) + (Wages + Office Expenses + Selling Expenses)
- Cost of Goods Sold = (5,00,000 - 1,00,000) + (20,000 + 75,000 + 50,000)
- Cost of Goods Sold = 4,44,000
- Gross Loss on Cost = 20% of Cost of Goods Sold
- Gross Loss on Cost = 0.2 x 4,44,000
- Gross Loss on Cost = 88,800
- Operating Expenses = Gross Loss on Cost + Other Operating Expenses
- Operating Expenses = 88,800 + 20,000 + 75,000 + 50,000 + 20,000
- Operating Expenses = 2,53,800
Calculation of Net Sales
- Net Sales = Revenue from Operations - Sales Returns
- Net Sales = 5,00,000 - 1,00,000
- Net Sales = 4,00,000
Calculation of Operating Ratio
- Operating Ratio = (Operating Expenses / Net Sales) x 100
- Operating Ratio = (2,53,800 / 4,00,000) x 100
- Operating Ratio = 63.45%
Conclusion
The Operating Ratio of the business is 63.45%. This indicates that the business is spending 63.45% of its revenue on operating expenses. It is important for businesses to maintain a low operating ratio in order to be profitable. However, the ideal operating ratio varies depending on the
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Calculate Operating Ratio from following information Revenue from Operations ` 5,00,000, Sales Returns ` 1,00,000, Rate of Gross loss on Cost 20%, Wages `20,000, Office Expenses ` 75,000, Selling Expenses ` 50,000, Interest on Borrowings ` 20,000.?
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Calculate Operating Ratio from following information Revenue from Operations ` 5,00,000, Sales Returns ` 1,00,000, Rate of Gross loss on Cost 20%, Wages `20,000, Office Expenses ` 75,000, Selling Expenses ` 50,000, Interest on Borrowings ` 20,000.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Calculate Operating Ratio from following information Revenue from Operations ` 5,00,000, Sales Returns ` 1,00,000, Rate of Gross loss on Cost 20%, Wages `20,000, Office Expenses ` 75,000, Selling Expenses ` 50,000, Interest on Borrowings ` 20,000.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Calculate Operating Ratio from following information Revenue from Operations ` 5,00,000, Sales Returns ` 1,00,000, Rate of Gross loss on Cost 20%, Wages `20,000, Office Expenses ` 75,000, Selling Expenses ` 50,000, Interest on Borrowings ` 20,000.?.
Calculate Operating Ratio from following information Revenue from Operations ` 5,00,000, Sales Returns ` 1,00,000, Rate of Gross loss on Cost 20%, Wages `20,000, Office Expenses ` 75,000, Selling Expenses ` 50,000, Interest on Borrowings ` 20,000.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Calculate Operating Ratio from following information Revenue from Operations ` 5,00,000, Sales Returns ` 1,00,000, Rate of Gross loss on Cost 20%, Wages `20,000, Office Expenses ` 75,000, Selling Expenses ` 50,000, Interest on Borrowings ` 20,000.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Calculate Operating Ratio from following information Revenue from Operations ` 5,00,000, Sales Returns ` 1,00,000, Rate of Gross loss on Cost 20%, Wages `20,000, Office Expenses ` 75,000, Selling Expenses ` 50,000, Interest on Borrowings ` 20,000.?.
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