What is Gross profit – Explanation with Examples

What-is-Gross-Profit

Gross Profit (G.P.) is that part of the revenue which is left after deducting all direct cost/expenses from the Net Sale. All direct cost/ expense means Cost of Goods Sold (COGS). COGS include all the cost incurred on the production of the product in the manufacturing unit or in the trading unit cost of requisition of the product.

The Formula of Gross Profit : –

“Gross Profit = Net Sales – Cost of Goods Sold”

• Net Sales = Total Sales – Sales Return
• COGS =  Opening Stock + Net Purchase + Direct Expense – Closing Stock.
• Net Purchase = Total Purchase – Purchase Return

Example No. 1 : –

Mr X purchase goods worth 100,000 and spent 1,000 on freight and transportation, 500 on octroi. He sold these goods to Mr Y for 120,000. Calculate the Gross Profit earned by Mr X.

Solution: –

First, calculate Cost of Goods Sold: –

COGS =  Opening Stock + Net Purchase + Direct Expenses – Closing Stock

0 + 100000+1000+500-0

COGS = 101500/-

G.P. = Net Sale – COGS
120000-101500
G.P. = 18,500/-

Example No. 2 : –

As on 01/04/2019 A&b Co. ltd. have a stock of goods worth Rs. 75,000. The purchase goods worth 4,50,000 during the year and spent 10,000 on Carriage, 2,500 on loading. They sold goods for worth Rs. 5,35,000 during the year and after that at the end of the year Rs 65,000 stock of goods left. Calculate the Gross Profit earned by Mr X.

Solution: –

First, calculate Cost of Goods Sold: –

COGS =  Opening Stock + Net Purchase + Direct Expenses – Closing Stock

75000 + 450000 + 10000 + 2500 – 65000

COGS = 4,72,500/-

G.P          = Net Sale – COGS
535000 – 472500
G.P.         = 62,500/-

Example No. 3 : –

As on 01/04/2019 A&b Co. ltd. have a stock of goods worth Rs. 35,000. The purchase goods worth Rs 1,50,000 and purchase return Rs 15,000 during the year and spent 2,000 on Carriage, 400 on loading. They sold goods for worth Rs. 2,35,000 and sale return Rs. 25,000 during the year and after that at the end of the year Rs 12,400 stock of goods left. Calculate the Gross Profit earned by Mr X.

Solution: –

First, calculate Cost of Goods Sold: –

COGS =  Opening Stock + Net Purchase + Direct Expenses – Closing Stock

35000 + (150000 – 25000) + 2000 + 400 – 12400

COGS = 1,50,000/-

G.P          = Net Sale – COGS
(235000- 25000) – 150000
G.P.         = 60,000/-

Check out the difference between Gross and Net Profit.

Difference between Gross profit and Net Profit

You can also read the following topics: –