1-3-3-Profits-And-Profit-Margins

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Exam code:1BS0

Types of profit

Profit is the money left over after all costs have been accounted for
If the costs are greater than the sales revenue, then the firm is making a loss
There are two different types of profit

Types of profit

Type of profit	What does it show?	How is it calculated?
Gross profit (GP)	The difference between sales revenue and the costs directly related to production	Gross Profit = Revenue – Cost of sales
Net profit (NP)	The difference between the gross profit and other operating expenses and any Interest	Net profit = Gross profit – (Operating expenses + Interest)

Type of profit

What does it show?

How is it calculated?

Gross profit

(GP)

The difference between sales revenue and the costs directly related to production

Gross Profit = Revenue – Cost of sales

Net profit

(NP)

The difference between the gross profit and other operating expenses and any Interest

Net profit = Gross profit – (Operating expenses + Interest)

Worked Example

An e-scooter manufacturer sells its products to retailers for £180 per unit. Variable costs are ⅖ of the selling price, with annual fixed costs being £820,000. The business also pays interest of £2,600 per year on its bank loans. It sells 26,400 scooters a year.

Calculate
(a) Gross profit for the year. (3)

(b) Net profit for the year. (2)

You are advised to show your workings.

Step 1: Calculate the variable cost per unit

$equals space ⅖ space o f space £ 180 equals space £ 72$ (1)

Step 2: Calculate the gross profit per unit

$equals space £ 180 space minus space £ 72 equals space £ 108$ (1)

Step 3: Calculate the gross profit per year

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Business GCES EDEXCEL

1-3-3-Profits-And-Profit-Margins

Types of profit

Types of profit

Worked Example

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