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Computation of Gross Profit

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Annely Jane Darbe
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7 views

Computation of Gross Profit

Uploaded by

Annely Jane Darbe
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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COMPUTATION

OF GROSS
PROFIT
LEARNING
OUTCOMES
01. LEARNERS WILL BE ABLE TO DEFINE GROSS
PROFIT
02. LEARNERS WILL BE ABLE TO COMPUTE GROSS
PROFIT
03. LEARNERS WILL BE ABLE TO UNDERSTAND
THE FACTORS THAT AFFECTS GROSS PROFIT
INTRODUCTION
In the realm of entrepreneurship, understanding and computing gross profit
holds significant importance as it serves as a fundamental indicator of a
business's financial health and viability. Gross profit represents the revenue
generated by a company after deducting the direct costs associated with
producing the goods or services sold. This metric provides entrepreneurs
with valuable insights into their operational efficiency, pricing strategies,
and overall profitability.
INTRODUCTION
Computation of gross profit involves straightforward arithmetic but
holds profound implications for decision-making within a business.
By accurately calculating gross profit, entrepreneurs can assess the
effectiveness of their production processes, negotiate better deals
with suppliers, and make informed decisions regarding pricing and
resource allocation. Moreover, tracking gross profit over time allows
entrepreneurs to identify trends, anticipate challenges, and
implement proactive strategies to optimize their profitability.
GROSS PROFIT
Gross profit—also known as sales profit or gross
income—is measured by subtracting the cost of goods
sold (COGS) from the revenue made from sales. It’s an
easy formula that should help you measure the value
your goods and services bring to your business
GROSS PROFIT
Gross profit—typically only includes variable costs—
such as hourly wages or materials—that fluctuate with
demand. It doesn’t include fixed costs, like lease
payments, that are stable regardless of how many goods
and services you produce. Investors and business owners
evaluate a company’s gross profit in order to understand
the price variation a business is able to charge
Gross Profit can be characterized by the
following key aspects:

Revenue Minus Basic Measure of Indicator of


Direct Costs Profitability Efficiency
Gross profit is the It serves as a basic measure A higher gross profit margin
difference between the of a company's profitability indicates that a company is
total revenue generated before considering other effectively controlling its
from sales and the direct operating expenses, such as production costs relative to
costs associated with marketing, administrative its sales revenue
producing the goods or costs, and taxes.
services sold.
Gross Profit can be characterized by the
following key aspects:

Critical for Pricing Varies by Industry Key for Financial


Decisions and Business Model Analysis
Gross profit analysis Gross profit margins Gross profit is a key
helps businesses make can vary significantly metric used in financial
informed decisions across different analysis to assess the
financial health and
about pricing industries and
performance of a
strategies. business models.
company.
In summary, gross profit represents
the basic profitability of a company's
core business activities, reflecting the
difference between revenue and direct
production costs. It serves as an
indicator of efficiency, pricing
effectiveness, and overall financial
performance.
FORMULA FOR GROSS
PROFIT
GROSS PROFIT = REVENUE - COST OF GOODS
SOLD
REVENUE
% % %
Refers to the total amount of
GROSS PROFIT REVENUE COGS money earned from the sale
of your business’s products or
services. Usually, this income
amount is not adjusted to
REVENUE
account for expenses like
Revenue 2023 2023 2023 Increase
business overhead, taxes or
Description 123 231 312 % interest. It only reflects the
Description 123 231 312 %
money earned from sales.
Description 123 231 312 %
Description 123 231 312 %
COGS
% % %
COGS (Cost of Goods Sold)
GROSS PROFIT REVENUE COGS are the direct costs associated
with producing a good or
delivering a service.
COST OF GOOD SOLD Indirect costs, such as operating
expenses and non-core
Cost of Goods Sold 2023 2023 2023 Increase
expenses, do not affect gross
Description 123 231 312 %
profit, contrary to direct costs.A
Description 123 231 312 %
Description 123 231 312 %
Description 123 231 312 %
FORMULA FOR GROSS
PROFIT
GROSS PROFIT = REVENUE - COST OF GOODS
SOLD
Revenue for
month of
August is
P235,000 and
the Total Cogs
is P187,500.
% % %
Class Activity
GROSS PROFIT REVENUE COGS

COMPUTE THE
Compute for the Gross Profit. PROJECTED GROSS
Months COGS Revenue Gross profit PROFIT FOR THE
HOTEL XYZ FOR
January P437,189 P729,499 ?
February P395,400 P710,475 ?
THE LAST
March P340,860 P395,345 ? QUARTER.
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