Swapnil (Student) (183 Points)
13 August 2014Plz solve this problem from Ratio Analysis am not getting correct answer for Operating Ratio:
Creditors 20000; Bills Payable 12750; Debentures 100000 ; Reserves 67250 ; Capital 100000;
Cash 15380; Debtors 11260 ; Stock 56160 ; Fixed Assets 217200;
Sales 180000; Net Profit 16000; Gross Profit 40000.
Plz help me out to compute "OPERATING RATIO"
Sashikant Tripathi
(Chartered Accountant)
(218 Points)
Replied 13 August 2014
Swapnil
(Student)
(183 Points)
Replied 14 August 2014
sir i too got the same answer as 66.66 but in the book the answer was given as 91.11%. I think there may be a printing mistake na...
Sorry ,my above calculation is wrong ,I didn't consider closing stock balance and net profit.
Correct calculation is -
COGS=Opening stock +purchases +direct expenses-closing stock.
COGS =Sales-Gross profilt
=180000-40000
=120000
Now .we put the value of COGS in above formula ,and will get the sum of opening stock ,purchases,and direct expense
120000=Opening stock+Purchases+Dorect expense-56160
Thus Sum of Opening stock,purchases ,direct exp=176160
The difference between two sides of profilt& loss a/c will be administrative exp (operating exp)
=Sales+Closing stock-Opening stock-Purchases -Direct Exp-Gross profit
=180000+56160-176160-40000
Administrative exp=20000
Net Profit =16000(Given)
The difference between Gross profit and net profit will also assumned as operating expense as non operating exp not given in question ie (intt on deb not available ),we take as selling distribution exp
=Gross profit-Net profit
=40000-16000
Selling exp=24000
Hence Operating ratiois=COGS+Adm exp+Selling expx100
Net sales
=120000+20000+24000x100
180000
=164000x100
180000
=91.11%
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