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gross profit calculation

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									  Review of Calculation to find
         Gross Profit
  Sales
- Cost of Merchandise Sold
= Gross Profit
        Formula for Cost of
         Merchandise Sold
  Beginning Merchandise Inventory
+ Purchases
= Merchandise Available For Sale
- Ending Merchandise Inventory
= Cost of Merchandise Sold
                 Example
 Beginning Merchandise Inventory    $10,000
+ Purchases                          15,000
= Merchandise Available For Sale      25,000
- Ending Merchandise Inventory     - 4,000
= Cost of Merchandise Sold             21,000
        Example--Continued
 Sales                       $30,000
- Cost of Merchandise Sold    21,000
= Gross Profit                 9,000
       Determine Gross Profit
 Sales (S)                       $30,000
- Cost of Merchandise Sold (C)    -    ?
= Gross Profit (G)                  30% of Sales
                                   [Gross Profit Rate (R)]



                                 G = SR
                                 G=30,000 x 30%
                                 G=$9,000
   Explanation of Gross Profit
          Calculation
When multiplying by a percent we convert
 the percent to a constant (k) representing
 the gross profit rate as a decimal.

    R             30
k=            k=            k=.30
   100           100
   Calculate Cost Of Merchandise
               Sold
 Sales (S)                          $30,000
- Cost of Merchandise Sold (C)       -     ?
= Gross Profit (G)                     9,000
G = SR                         C=S-G
G=30,000 x 30%                 C=30,000 -9,000
                               C= 21,000
G=$9,000
Calculating Merchandise Available
      and Ending Inventory
 Beginning Merchandise Inventory(B)    $10,000
+ Purchases (P)                         15,000
= Merchandise Available For Sale(M)        ?
- Ending Merchandise Inventory(E)     -    ?
= Cost of Merchandise Sold(C)
                                        21,000
  M=B+P
  M = 10,000 + 15,000
  M= 25,000

  E=M-C
  E = 25,000 - 21,000
  E = 4,000
Calculating Merchandise Available
         Ending Inventory
   Beginning Merchandise Inventory(B)    $10,000
  + Purchases (P)                         15,000
  = Merchandise Available For Sale(M)     25,000
  - Ending Merchandise Inventory(E)     - 21,000
  = Cost of Merchandise Sold(C)
                                           4,000

M=B+P
M = 10,000 + 15,000
M= 25,000

E=M-C
E = 25,000 - 21,000
E = 4,000
Calculating Merchandise Available
         Ending Inventory
   Beginning Merchandise Inventory(B)    $10,000
  + Purchases (P)                         15,000
  = Merchandise Available For Sale(M)     25,000
  - Ending Merchandise Inventory(E)
                                        - 21,000
  = Cost of Merchandise Sold(C)
                                           4,000

M=B+P
M = 10,000 + 15,000
M= 25,000

E=M-C
E = 25,000 - 21,000
E = 4,000
      Summary of Calculations
                                        R
We know:                   Step 1   k=
B=$10,000      S=$30,000               100
                           Step 2   G = kS
P=$15,000      R=30%
                           Step 3   C=S-G
We must calculate:         Step 4   M=B+P
      k                    Step 5   E=M-C
     G
     C
     M
     E
  Calculating Gross Profit using
           Algebra
 All the steps previously discussed can be
  combined as a mathematical statement.

               ⎡ ⎛      R ⎞
E = (B + P ) − ⎢ S 1 −              ]
               ⎣ ⎝     100 ⎠
Calculating Gross Profit Using Algebra
                           ⎡ ⎛      R    ⎞
E   =   (B     + P   )   − ⎢S 1 −             ]
                           ⎣ ⎝    100    ⎠
                             ⎡          ⎛    30 ⎞
E = (10 , 000 + 15 , 000 ) − ⎢ 30 , 000 1 −         ]
                             ⎣          ⎝   100 ⎠
E = ( 25 , 000       ) − [ 30 , 000 (1 − .3 ) ]
E = ( 25 , 000      ) − [ 30 , 000 ( .7 ) ]
E =     ( 25   , 000 ) − [ 21 , 000     ]
E = 4 , 000
          Another Problem
Beginning Merchandise Inventory is $4,000
Purchases amounted to $6,000 and total sales
equals $5,000 The Gross Profit Rate is 40%

What is the amount of Ending Merchandise
Inventory?
                         Solution
                           ⎡ ⎛      R     ⎞
E     =   (B   + P   )   − ⎢S 1 −              ]
                           ⎣ ⎝    100     ⎠
                               ⎡        ⎛    40 ⎞
    E = ( 4 , 000 + 6, 000 ) − ⎢ 5, 000 1 −         ]
                               ⎣        ⎝   100 ⎠
E = (10 , 000        ) − [5 ,000 (1 −   .4 )   ]
E = (10 , 000       ) − [5 , 000 ( . 6 ) ]
E = (10        , 000 ) − [ 3 , 000     ]
E = 7 , 000

								
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