Expense to Sales ratio in Performance Measurement?

AAli12y ago

Dear Sir, Im confused about one thing. When do we express certain expenses as a & of sales and not just show their increase or decrease? Like in the Accountancy Tuition question we just show and comment on increase in costs like marketing, staff etc. However in Ties Only (dec 07) we express website development, distribution and others as a % of sales and comment on whether they have increased or decreased as % of Sales... Thanks in Advance :)

John MoffatTutor12y ago#1

There is no rule, but the reason is that as sales increase, we would expect variable expenses to increase. For example, suppose sales last year were 100 and this year they increased to 200. Suppose also that variable expenses were 40 last year and were 60 this year. Expenses have certainly gone up, but since were are selling twice as many I would not have been surprised if the expenses were twice as big as well. In fact they have gone up less than the increase in sales - it seems as though we are controlling expenses well.

AAli12y ago#2

Well that makes much more sense now, thanks a lot Sir... Have a nice day!

John MoffatTutor12y ago#3

You too :-)

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