CALCULATION OF LOSS -
Loss is the negative difference between total expenses and total revenue.
The formula for calculating loss is:
Loss = Total Expenses - Total Revenue
LOSS = Cost Price (C.P) - Sell Price (S.P) [when, CP > SP]
Thus, Sell Price (S.P) = Cost Price (CP) - Loss
and, Cost Price (C.P) = Sell Price (S.P) + Loss
Net C.P of an article = Cost of the article + overhead expense
An Important Note -
Profit or Loss is always counted on net C.P.
Loss Per Cent:- Loss on $100 is called loss per cent.
Important Formulae :-
Loss% = (--------- X 100)%
Here's how to break down the components:
Once you have the values for Total Expenses and Total Revenue, you can use the formula to calculate the loss.
Example.1) The business sold 1,000 units of a product at a price of $50 per unit. The cost to produce each unit (COGS) was $25, and the operating expenses amounted to $10,000. Find the loss.
Total Revenue = 1,000 units × $50 per unit = $50,000
Total COGS = 1,000 units × $25 per unit = $25,000
Total Expenses = COGS + Operating Expenses = $25,000 + $10,000 = $35,000
Loss = Total Expenses - Total Revenue = $35,000 - $50,000 = -$15,000
In this example, the business would have a loss of $15,000. (Ans.)
Example.2) A dealer sells a fridge for $2530, thus loosing $220. Find (i) its cost price and (ii) loss per cent.
Ans.) S.P of the fridge = $2530, Loss = $220
So, Loss = Cost Price (C.P) - Sell Price (S.P)
Or, Cost Price (C.P) = Loss + Sell Price (S.P)
= $220 + $2530 = $2750 ..........(i) (Ans.)
Now, C.P = $2750, and Loss = $220
Loss% = (-------- X 100)%
= (--------- X 100)% = 8%
So, percentage of loss is 8%. .............(ii) (Ans.)
It's important to note that a negative result indicates a loss, and a positive result indicates a profit. While a loss might not be desirable for a business, it's a crucial metric to monitor as it helps you assess the financial health of the business and make informed decisions about potential adjustments to your operations, costs, and pricing strategies.