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Profit or Loss

This document defines key terms related to profit and loss such as profit, loss, gross sales, net sales, cost of sales, and operating expenses. It provides examples of calculating profit and loss in different scenarios involving the purchase and sale of goods. It also explains break-even analysis and how to calculate break-even points in units and sales based on unit price, variable costs, and fixed costs. Sample profit and loss statements are presented.

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Armea Torreliza Banaag
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96 views22 pages

Profit or Loss

This document defines key terms related to profit and loss such as profit, loss, gross sales, net sales, cost of sales, and operating expenses. It provides examples of calculating profit and loss in different scenarios involving the purchase and sale of goods. It also explains break-even analysis and how to calculate break-even points in units and sales based on unit price, variable costs, and fixed costs. Sample profit and loss statements are presented.

Uploaded by

Armea Torreliza Banaag
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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PROFIT OR LOSS

PROFIT OR LOSS
Definition of Terms:

Profit – is what remains of the selling price(sales) after


all costs and expenses had been deducted.
Loss – occurs when the cost and expenses exceed the
selling price or sales.
A Trading or merchandising firm buys goods that it
sells.
Gross sales – refer to the total sales.
Net Sales - Sales discounts and sales returns and
allowances are deducted from the gross sales
Income statement – is the financial statement that
shows the results of operation , that is, if a business
earns a profit or incurs or loss.
Cost of sales– is the purchase price and other expenses
incurred in buying the products that the business has
to sell including the freight-in or transportation of the
goods it buys for resale.
Operating Expenses – are expenses incurred to run a
business ( rent, supplies, utilities) and financial
expenses.
Let’s Think!
Situation A:
You bought a bag for ₱800.00. You spent ₱50 for
transportation in going to store to buy it. For the
following independent cases, determine whether
you earn a profit or incurred a loss. Determine how
much your profit or loss was.
a.You sold the bag to your friend for ₱1,000.00
b.You sold the bag to your friend for ₱700.00
Situation B
Abigail purchased a suitcase for ₱1,200.00. She paid
₱120.00 for delivery of the suitcase from seller to
her place. She asked the help of Bernadette to sell
the suitcase. She promise to give Bernadette 150.00
if Bernadette could sell the suitcase for 2,000.00.
Bernadette was able to sell the suitcase for 1,900.00
to which Abigail agreed.
Formulas
Gross Profit( gross margin) = Net Sales – Cost of Goods
Profit = Revenue - cost
Loss = Cost – Net Sales

Operating profit/loss = gross profit – operating expenses

Net Profit/loss = (operating profit + other income) -


other expense
Example 1
A watch store owner decided to offer a 20% discount for
a particular brand of watch that sells at PHP 35,000. By
doing so, his average sales increased from 5 watches to
12 watches a day. If he bought one watch at a price of
PHP 22,000 from the supplier, by how much was the daily
profit increased or decreased by offering such a discount
on the watch?
Example 2
Alden went to Bicol and bought 25 packs of pili
nuts for PHO 875 with 10% discount. When he
got back to Manila, he sold 15 packs for PHP
675, and the rest at PHP 40 each. How much
profit did Alden gain?
Example 3
A shopkeeper buys digital camera at PHP 5400
each, Due to price fall in the market, he was
forced to sell them at a 15% loss. Find the
selling price of the digital camera.
Break-even Analysis – very important concept in
profit and loss.
The analysis is significant in examining the
relationship among various elements such as
costs ( variable and fixed), prices, volume of the
sales that will lead to the best combination that
will make the total revenue and total cost equal.
Fixed Cost – cost necessary to keep the business
running regardless of the sales volume.
ex. Rent, salaries of employees, basic utilities and
others.
Variable Cost – cost producing the product.
Revenue – product of the price and the quantity sold.
R = p ( x)
Note
In Business, when the total cost is higher than
revenue the level of sales is losing ( TC > R then P <
0).
When revenue is higher than the total cost, the
business is making a profit, (TC < R the P > 0).
Finally the point at which revenue is equal to a total
cost is called the break-even point. (TC = R )
Break-even Point
• Is the point where a business neither makes a profit nor
a loss.
• At the break-even point, a business revenue is equal to
its total costs. In as much as there is no profit or loss at
the break-even point, the revenue will equal to total
costs.
Total Cost = Fixed Costs + Variable cost
Break – even Point

Total Cost = Fixed Costs + Variable Costs


TC = FC + VC
Let x = nos. of units
TC = Total cost
P = Price of item
VC = variable cost per unit
FC = total fixed cost.
Break-even point in Nos. (Units)
x=

Break-even point in pesos would be:


BEP(PHP) = Unit Price x BEP(UNITS)
Example:
Calculate the break-even point in sales units and sales from the following
information:
Unit Price = ₱ 20
Variable Cost = ₱ 8
Fixed Costs = ₱ 12,000

Solution:
BEP in Units (x) = = = 1,000 units
BEP in Pesos = 1000 x 20 = ₱20,000
Example 2. Find the break-even points in
units and in peso given that the unit price of a
certain commodity is ₱15.00; variable cost
₱5.00 and fixed cost ₱12,000.00
• Solution: BEP in Units (x) = =
Unit Price = ₱ 15 = 1,200 units
Variable Cost = ₱ 5 BEP in Pesos = 1200 x 15 = ₱18,000
Fixed Costs = ₱ 12,000
Profit and Loss Statement
Jose Parsons Repair Shop
Income Statement
For the Month Jan - March
Revenues:
Repair Income Php 343,215
Referral Income 12, 115
Invest Income 620
Total Php 355,990
Expenses:
Rent 45,000
Utilities 32,000
Salaries 45,000
Insurance 7,500
Depreciation of Equipment 8,300
Supplies 2,250
Total 140,050
Net Income Php 215,940
Try this!
1.A television set purchased for ₱5,400.00 was resold
₱4,800.00. How much was the profit or loss in the
transaction?
2.A company’s variable cost per unit is ₱7.00 and the
total fixed cost at ₱9,000.00. If the company sold a
total of 10,000 units yielding a total sales of
₱150,000.00, find the BEP in units and BEP in pesos.
Example 1
Del Rosario Enterprise has gross sales amounting to Php
965,650.00 for the first three months of its operation. The
refunds and allowances for defective goods amounted to Php
20,800.00. The cost of goods sold was Php 610,500.00. The
operating expenses include: salaries and wages, Php 52,300.00; rent
Php 25,000; light/water bills Php 5,750.00 and other miscellaneous
expenses amounting to Php 18,957.00 Find the:
a. Net sales
b. Gross profit
c. Total operating expenses
d. Net profit/income
Example 2
The total sale of Liz Botique during the month of
May were P64,570.40. The goods sold cost her
P40,219.75. Her expenses in carrying on the
business were: wages of the store’s clercks, P2,100,
rent P 1,200: light and water bills, P450; supplies
used, P215; miscellaneous expenses, P1,512. What
was a) the gross profit for the month? b) the total
operating expenses? c) the net profit for the

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