2.6 Ratios
Ratios give exactly the same information as fractions but expressed in a different form. 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 (spoken as ‘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 5 Use of ratios
A company has three departments that make use of the canteen. Running the canteen costs £135,000 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.
| Dept | 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 £135,000 | = £84,375 |
| Assembly | (50 / (125 + 50 +25)) x £135,000 | = £33,750 |
| Distribution | (25 / (125 + 50 +25)) x £135,000 | = £16,875 |