To determine how profitable a department has been, which ratio should be evaluated?

The ratio of profit to sales is crucial for assessing a department's profitability because it directly measures how much profit is generated for each dollar of sales. This ratio provides insight into the efficiency of the department in converting sales into actual profit, indicating the financial health and performance of that segment.

When analyzing profitability, it's not just important to know the total sales or income, but also how much of that income remains as profit after accounting for all expenses. This ratio highlights the effectiveness of the department’s cost management and pricing strategy, leading to better-informed decisions about operational improvements and resource allocation.

Other ratios, while they may provide relevant information, do not focus specifically on the direct relationship between profit and sales. For instance, the ratio of income to revenue focuses on gross income but does not address costs, the ratio of costs to income could misrepresent profitability by emphasizing expenditures, and the ratio of overhead to sales overlooks the critical relationship between total sales and profit margins. Therefore, the ratio of profit to sales is the most effective way to evaluate a department's profitability comprehensively.