Gross Profit Formula

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