CALCULATION OF PROFIT -
A shopkeeper buys goods either from a manufacturer or a wholesaler. He then sells these articles to his customers. Usually, a shopkeeper sells an article at a price higher than the price at which he buys it. In such cases, he a makes profit or gain.
Cost Price (CP):- The money paid by a shopkeeper to buy an article is called the cost price of the article.
Selling Price:- The money received by a shopkeeper on selling an article is called the selling price (SP) of the article.
Profit or Gain:- If (S.P) > (C.P), then the seller makes a gain.
GAIN = Sell Price (S.P) - Cost Price (C.P),
Thus, Sell Price (S.P) = Cost Price (C.P) + (Gain),
And, C.P = (S.P) - (Gain)
Total Revenue: This includes all the income generated from the sale of goods or services. It can be calculated as:
Total Revenue = Quantity Sold × Price Per Unit
Total Expenses:- These are all the costs incurred in running the business. Expenses can be categorized into different types, such as:
a. Cost of Goods Sold (COGS):- This includes direct costs associated with producing or purchasing the goods that were sold. It typically includes raw materials, labor, and manufacturing costs.
b. Operating Expenses:- These are the ongoing costs of running the business, such as rent, utilities, salaries, marketing expenses, and administrative costs.
c. Other Expenses:- These can include interest payments on loans, taxes, depreciation, and other miscellaneous expenses.
Once you have the values for Total Revenue and Total Expenses, you can use the formula to calculate the profit.
Cost Price (C.P) of an article = Cost of the article + Overhead Expense
Note:- Profit or Loss is always counted on net C.P
Gain Per Cent:- Gain on $ 100 is called gain percent
Gain
Gain% = (-------- X 100)%
C.P
Example.1) Let's say a 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 profit.
Ans.) 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
Profit = Total Revenue - Total Expenses = $50,000 - $35,000 = $15,000
In this example, the business's profit would be $15,000.
Example.2) A trader purchase a bicycle for $8250 and sells it for $9240. Find his (i) gain and (ii) gain per cent.
Ans.) Cost price (C.P) of the bicycle = $8250, and
Sell Price (S.P) = $ 9240
Here we can see that, S.P > C.P
So, Profit = S.P - C.P = $ (9240 - 8250) = $990 .............(i) (Ans.)
Gain
Gain% = (-------- X 100)%
C.P
990
= (------- X 100)% = 12%
8250
So, the profit is 12% (Ans.)
Example.3) A trader bought 15kg of one variety of rice at $60 per kg and 25kg of another variety at $44 per kg. He mixed the two varieties and sold the mixture at $55 per kg. Find the gain or loss per cent in whole transaction.
Ans.)
C.P of 15kg rice =$(60 X 15) = $900
C.P of 25kg rice = $(44 X 25) = $1100
C.P of (25 + 15)kg => 40kg mixture = $(900 + 1100) = $2000
So, C.P of 40kg rice = $2000
He sold 40kg rice by $55 per kg = $(40 X 55) = $2200
So, S.P of 40kg rice = $2200
So, we can find that, S.P > C.P
So, Gain = $(2200 - 2000) = $200
As we know that the formulae of Gain is -
Gain
Gain% = (-------- X 100)%
C.P
200
= --------- X 100 = 10%
2000
So, the percentage of Gain is 10% (Ans.)
Remember that profit is just one measure of a business's financial performance. It's important to analyze other financial ratios and factors to get a comprehensive understanding of the business's health and profitability.