1.5 Ratios
Ratios give exactly the same information as fractions. Accountants make extensive use of ratios in assessing the financial performance of an organisation.
A supervisor’s time is spent in the ratio of 3:1 (pronounced ‘three to one’) between Departments A and B. (This may also be described as being ‘in the proportion of 3 to 1.’) Her time is therefore divided 3 parts in Department A and 1 part in Department B.
There are 4 parts altogether and:
- 3/4 time is in Department A
- 1/4 time is in Department B
If her annual salary is £24,000 then this could be divided between the two departments as follows:
- Department A 3/4 x £24,000 = £18,000
- Department B 1/4 x £24,000 = £6,000
Activity 7
A company has three departments who use the canteen. Running the canteen costs £45,000 per year and these costs need to be shared out among the three departments on the basis of the number of employees in each department.
| Department | Number of employees |
|---|---|
| Production | 125 |
| Assembly | 50 |
| Distribution | 25 |
How much should each department be charged for using the canteen?
Answer
Production
(125 / (125 + 50 + 25) x £45,000 = £28,125)
Assembly
(50 / (125 + 50 + 25) x £45,000 = £11,250)
Distribution
(25 / (125 + 50 + 25) x £45,000 = £5,625)