Q.From the same figures given in Practical Problem 2 above, compute the Operating Ratio and the Operating Profit Ratio.

The Operating Ratio adds Cost of Goods Sold and Operating Expenses together over Net Sales; the Operating Profit Ratio is simply its complement out of 100.

Step 1 — Operating Ratio:

Cost of Goods Sold = ₹7,00,000. Operating Expenses = Office & Admin Expenses + Selling & Distribution Expenses = 80,000 + 70,000 = ₹1,50,000.

Operating Ratio = [(Cost of Goods Sold + Operating Expenses) ÷ Net Sales] × 100 = [(7,00,000 + 1,50,000) ÷ 10,00,000] × 100 = (8,50,000 ÷ 10,00,000) × 100 = 85%.

Step 2 — Operating Profit Ratio (the complement):

Operating Profit Ratio = 100 − Operating Ratio = 100 − 85 = 15%.

Cross-check, computed directly: Operating Profit = Gross Profit − Operating Expenses = 3,00,000 − 1,50,000 = ₹1,50,000. Operating Profit Ratio = (1,50,000 ÷ 10,00,000) × 100 = 15%. This matches the complement method exactly, confirming the figure. …

The Operating Profit Ratio can always be found two ways that must agree: (1) 100 − Operating Ratio, or (2) directly as (Operating Profit ÷ Net Sales) × 10 …

A common error is forgetting to include BOTH Office & Administration Expenses AND Selling & Distribution Expenses in 'Operating Expenses' — omitting one understates the Operating Ratio and correspondingly overstates the Operating Profit Ratio. Non …