What is Gross Profit?

Gross profit refers to the amount of money a company makes prior to consideration of operating expenses, interest, and taxes. Gross profit is a reflection of how well the company is efficient in its use of resources in manufacturing products for sale.

The Formula for Gross Profit

This is the formula for gross profit:

where:

• Revenue: It is the summation of money earned through the sale of goods or services.

• The (COGS) refers to the direct costs associated with the production of the goods sold by a company. The costs involved would include raw materials and labor directly linked with production.

Practiced Problems

Problem 1: The cost of a fan is 5.30Rs and sold at 7.90 Rs . Find the gross profit?

Solution:

Given

    Revenue = 5.30

    Selling price = 7.90

By using formula ,

              Gross Profit = Revenue – Cost of Goods

              Gross Profit = 7.90 – 5.30

              Gross Profit =2.6

Problem 2: The cost of a toy is 6.70 Rs and sold at 10.00 Rs. Find the gross profit?

Solution:

Given

           Revenue = 6.70

          Selling price = 10

By using formula ,

              Gross Profit = Revenue – Cost of Goods

              Gross Profit = 10 – 6.70

              Gross Profit =3.3

 

Therefore , the gross profit is 3.3

Conclusion

Gross profit and the ways of its calculation are a ground for financial performance analysis of the company.Good knowledge of this very basic metric permits students and future professionals to understand the very core of how businesses perform and make strategic decisions.

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