# Calculation of Sales Ratio

11/07/2020

Sales Ratio is very much significant as there are certain expenses which are allocated on the basis of sales apart from gross profit. In the previous problem we have assumed that the amount of sales is a single amount.

But where such sales fluctuate from month to month, calculation of sales ratio is not so simple. For example, sale of woolen products usually increases in the months of December, January and February in comparison with the other months of a year.

It may also be found out that among the months of December, January and February, sales may also vary. In these cases, sales ratio is determined on the basis of expected relationship of the monthly sales with the total amount of sales.

Consider the following illustration.

illustration:

X Ltd. was incorporated on 1st April 2007 in order to take over a running business from 1st January 2007. X Ltd. prepares its final accounts on 31st December 2007. You are asked to calculate the sales ratio of pre- and post-incorporation periods from the following particulars:

(a) Sales (from January 2007 to December 2007)—Rs. 4, 80,000;

(b) January sales = Twice the Average Sales;

(c) February sales = Average Sales;

(d) May to August = 1/4th of the Average Sale for each month;

(e) October and November = 3 times the Average Sale.

 Computation of Sales Ratio ( pre and post-incorporation) Average Sales = Rs.4,80,000/12 = Rs. 40,000 January Rs. 40,000 *2 80,000 February Rs. 40,000 *1 40,000 May Rs. 40,000 *(1/4) 10,000 June Rs. 40,000 *(1/4) 10,000 July Rs. 40,000 *(1/4) 10,000 August Rs. 40,000 *(1/4) 10,000 October Rs. 40,000 *3 1,20,000 November Rs. 40,000 *3 1,20,000 Total Sales = Rs. 4,00,000

Sales for the remaining month: March + April + September + December= 4 months

Sales for those periods = Rs 4,80,000 – Rs. 4,00,000 = Rs. 80,000