Gross Profit Formula
Last Updated :
25 Dec, 2023
Gross Profit is defined as the amount of money left over after selling corporate goods or services. It equals the amount of money or profit made by a company after subtracting selling and receiving expenses. The value of gross profit is maximum when the value of revenue is greater and the cost of goods is minimum. It aids cost accountants and management in the creation of budgets and future projections. It also assists investors in evaluating the margins or earnings of two or more firms, regardless of size or sales.
Gross Profit Formula
The formula for gross profit equals the difference between revenue and cost of goods for a company. The value of revenue is equal to the difference between the sales and sales return. The cost of goods is given by the difference between the sum of opening stocks, purchases, direct expenses, direct labor, and the sum of purchase returns and closing stocks.
G = R – C
R = Sales – Sales return
C = (Opening stock + Purchases + Direct expenses + Direct labor) – (Purchase returns + Closing Stock)
Where,
- G is the gross profit
- R is the revenue
- C is the cost of goods
Sample Questions
Question 1. Calculate the gross profit for revenue and cost of goods of ₹22000 and ₹12000 respectively.
Solution:
We have,
R = 22000
C = 12000
Using the formula we get,
G = R – C
= 22000 – 12000
= ₹10000
Question 2. Calculate the gross profit for revenue and cost of goods of ₹142000 and ₹120000 respectively.
Solution:
We have,
R = 142000
C = 120000
Using the formula we get,
G = R – C
= 142000 – 120000
= ₹22000
Question 3. Calculate the revenue for gross profit and cost of goods of ₹15000 and ₹40000 respectively.
Solution:
We have,
G = 15000
C = 40000
Using the formula we get,
G = R – C
=> R = G + C
= 15000 + 40000
= ₹55000
Question 4. Calculate the cost of goods for gross profit and revenue of ₹2000 and ₹23000 respectively.
Solution:
We have,
G = 2000
R = 23000
Using the formula we get,
G = R – C
=> C = R – G
= 23000 – 2000
= ₹21000
Question 5. Calculate the revenue for sales of ₹90000 and sales return of ₹80000.
Solution:
We have,
Sales = 90000
Sales return = 80000
Using the formula we get,
R = Sales – Sales return
= 90000 – 80000
= ₹10000
Question 6. Calculate the gross profit for sales of ₹65000, sales return of ₹15000 and cost of goods ₹30000.
Solution:
We have,
Sales = 65000
Sales return = 15000
Find the revenue value.
R = Sales – Sales return
= 65000 – 15000
= ₹50000
Given that, C = 30000.
Using the formula we get,
G = R – C
= 50000 – 30000
= ₹20000
Question 7. Calculate the gross profit for the data:
Parameters |
Value (in ₹) |
Opening stocks |
1000 |
Purchases |
2000 |
Direct expenses |
3000 |
Direct labor |
4000 |
Purchase returns |
1500 |
Closing Stocks |
2500 |
Revenue |
15000 |
Solution:
Calculate the cost of goods from given data.
We have,
C = (Opening stock + Purchases + Direct expenses + Direct labor) – (Purchase returns + Closing Stock)
= (1000 + 2000 + 3000 + 4000) – (1500 + 2500)
= 10000 – 4000
= ₹6000
Given that, R = 15000.
Using the formula we get,
G = R – C
= 15000 – 6000
= ₹9000
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