2-3-1-profit

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Profit calculations

Profit is the money left over after all costs have been accounted for
There are several different types of profit

Types of profit

Type of profit	What does it show?	How is it calculated?
Gross profit (GP)	The difference between revenue and the costs directly related to production	GP = revenue − cost of sales
Operating profit (OP)	The difference between the gross profit and the indirect expenses involved in operating the business	OP = gross profit − operating expenses
Net profit (NP)	The difference between the operating profit and any interest paid and received, as well as any one-off costs	NP = operating profit − (net interest + exceptional costs)

Type of profit

What does it show?

How is it calculated?

Gross profit

(GP)

The difference between revenue and the costs directly related to production

GP = revenue − cost of sales

Operating profit

(OP)

The difference between the gross profit and the indirect expenses involved in operating the business

OP = gross profit − operating expenses

Net profit

(NP)

The difference between the operating profit and any interest paid and received, as well as any one-off costs

NP = operating profit − (net interest + exceptional costs)

Worked Example

An e-scooter manufacturer sells its products to retailers for £180 per unit. Variable costs are ⅖ of the selling price, with monthly fixed costs being £82,000. It sells 2,200 scooters a month.

The business pays £240 interest on a mortgage each month. This year, it purchased the patent for a new type of rechargeable battery for £17,000.

Calculate the business’s net profit for the year.

[5]

Step 1: Calculate the variable cost per unit

$equals space ⅖ space of space £ 180 equals space £ 72$

Step 2: Calculate the gross profit per unit (selling price − variable cost per unit)

$equals space £ 180 space minus £ 72 equals space £ 108 space$ [1]

Step 3: Calculate the gross profit per month (gross profit per unit × units sold)

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Business_A-level_Edexcel

1-marketing-and-people

2-3-1-profit

Profit calculations

Types of profit

Worked Example

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