Question

Calculate ‘Operating Profit Ratio’ from the following information: Revenue from operations: \rupee 10,00,000 Gross profit: 25\% on cost Office and administrative expenses: \rupee 18,000 Selling and distribution expenses: \rupee 2,000 Loss by theft: \rupee 20,000

Hint:

Operating Profit Ratio highlights the efficiency of a company’s core operations. It excludes non-operating incomes and expenses.

Answer 1

Step 1: Calculate Gross Profit:
Gross profit is given as 25\% on cost. Converting it to a percentage on sales: $$\text{Gross Profit on Sales} = \frac{25}{100 + 25} \times 100 = 20\%$$ \[ \text{Gross Profit} = \rupee 10,00,000 \times 20\% = \rupee 2,00,000 \] Step 2: Calculate Operating Profit:
Operating profit is calculated as: $$\text{Operating Profit} = \text{Gross Profit} - \text{Operating Expenses}$$ Operating Expenses include: Office and administrative expenses: \rupee 18,000 Selling and distribution expenses: \rupee 2,000 Loss by theft: \rupee 20,000 \[ \text{Total Operating Expenses} = \rupee 18,000 + \rupee 2,000 + \rupee 20,000 = \rupee 40,000 \] \[ \text{Operating Profit} = \rupee 2,00,000 - \rupee 40,000 = \rupee 1,60,000 \] Step 3: Calculate Operating Profit Ratio:
$$\text{Operating Profit Ratio} = \frac{\text{Operating Profit}}{\text{Revenue from Operations}} \times 100$$ \[ \text{Operating Profit Ratio} = \frac{\rupee 1,60,000}{\rupee 10,00,000} \times 100 = 20.4\% \]