Revenue from operations · Part 2

Operating cost Operating cost ratio = × Revenue from operations , , = × = % , , Cost of revenue from operations = Purchases of stock-in-trade + Change in inventories of stock in trade + Direct expenses (wages) = , , + ( , ) + , = ` , , Operating expenses = Administrative expenses + Selling and distribution expenses + Employee benefits expenses (salaries) = , + , + , = ` , Operating cost = Cost of revenue from operations + Operating expenses = , , + , = ` , , Tutorial Note Loss on sale of fixed assets is a non-operating item, hence it is ignored. (iii) Operating profit ratio Operating profit ratio gives the proportion of operating profit to revenue from operations. Operating profit ratio is an indicator of operational efficiency of an organisation. It may be computed as follows: × Revenue from operations Alternatively, it is calculated as under. Operating profit ratio = – Operating cost ratio Operating profit = Revenue from operations – Operating cost A higher ratio indicates better profitability. Greater the operating ratio, higher is the margin available for paying non-operating expenses. Tutorial note Operating cost ratio + Operating profit ratio = % Illustration Calculate operating profit ratio under the following cases. Case : Revenue from operations ` , , , Operating profit ` , , . Case : Revenue from operations ` , , , Operating cost ` , , . Case : Revenue from operations ` , , , Gross profit % on revenue from operations, Operating expenses ` , ,