Gross Profit and Loss

Net sales is the amount of money received for goods sold less discounts, refunds, and allowances.
Refunds are repayments made to customers for returned merchandise, defective good, and other
reasonable adjustment. The cost of goods sold includes the actual amount paid for the goods, and the
buying expenses such as transportation or freight charges. The difference between the net sales and te cost
of the goods to the merchant is called the gross profit or margin. Hence,

Gross profit= net sales – cost of goods sold

Note: Gross means total or without any deduction, while net means the remaining amount after
all deductions have been made.

Although the primary reason for engaging in business is to earn a profit, a merchant sometimes
suffers a loss due to adverse market conditions, mismanagement, changes in style poor judgment and the
like. When the net price of an item is less than its cost, the difference is called gross loss.

Gross loss=cost of goods sold - net sales

Example 1

A retailer bought 6 baskets of eggs. Each basket costs P252 and contains 5 dozens of eggs. He sold them
at 2 eggs for P11. At that rate, what was his profit on the 6 baskets of eggs?

Solution:

Given: number of eggs bought = 6 baskets

Number of eggs per basket = 5 dozens
Cost = P252 per basket
Selling price = 2 eggs for P11
Required: Gross profit
cost of 6 basket of eggs = 6 x P252
= P1,512
Number of eggs = 6 x 5 x 12
=360
11
sales = 360 x
2
sales = 1,980
Gross profit= net sales – cost of goods sold
Gross profit = P1,980 – P1,512
= P468
Assignment: Write your answers o a separate sheet of yellow paper.

1. In order to increase sales, a shoe store owner reduced the selling price of a certain shoe from
P1,095 to P945. The average sales thereby increased from 25 pairs to 40 pairs a day. If a pair of
shoes cost the store P645, by much was the daily profit increased or decreased by reducing the
price of the particular pair of shoes? 25 points
2. A merchant bough on consignment 8 dozens of women’s slacks for P24,350, less 20%. Three
dozens slacks were sold at P375 per piece, but as the style did not appeal to the public, the rest
were sold at P275 each what was his gross profit or loss? 40 points
3. E Cruz purchased 150 pieces of candies at 84 centavos per piece. He sold 94 candies at P1.25 per
piece but had to discard the rest due to spoilage. What was his gross profit or loss? 30 points
Finding the Cost of Goods Sold
To determine the cost of goods sold over period of time, one could go over the sales slips or make
an inventory of what is left. The cost of goods sold is obtained by subtracting the cost of good left from
the cost of goods purchased. That is,

Cost of goods sold = purchase – ending inventory

When there is an inventory at the beginning of a period, this must also be taken into account
when determining the cost of goods sold. The value of the merchandise that the retailer had for sale
during the period is the sum of the cost of inventory at the beginning of the period and the cost of
purchase made. The cost of goods sold is the value of the merchandise less the ending inventory.

Cost of goods sold = beginning inventory + purchases – ending inventory

\
Assignment

1. A retailer purchased 70 reams of typewriting paper for P9,730. At the end of the week, he found
that there are still 13 reams left, the cost of which was P1,807. Find the cost of goods sold.
20 points
2. On march 1, the stock of the C and L Hardware Store was recorded at 76,327. Goods bought
during the month mounted to 21,854 and on March 31, the inventory was 45, 611. Find the cost
of goods sold. 20 points
3. On January 1, the merchandise inventory of the G and R Hardware Store was 153,271. For the
next three months, the store’s sales reached 120,719 and its purchases amounted to 76,853. The
inventory on March 31 was 184,625. Find the gross profit for three months. 20 points
Finding the Net Profit
Generally, various expenses are incurred in order to sell goods. Expenses such as rent,
electricity, insurance, salaries, taxes, advertising, delivery expenses and depreciation of
equipment are known as operating expense or overhead. The total operating expense is referred
to as the cost of doing business. When the total operating expense is less than the gross profit,
the difference is called the net profit; when it is greater than the gross profit, the difference is call
net loss.

Net profit = gross profit – total operating expenses

Net loss = total operating expenses – gross profit

Assignment

1. Arturo Caras bought plumbing supplies costing 85,000 less 15%. He sold all the supplies for
155,000 he spent 18500 for rent, 22,000 or wages of this workers and 4,000 for other expenses.
30 Points
2. During a three- month period, the gross sales of the Indoor Sporting Goods Store amounting to
489,325. Merchandise returns and allowances on exchanges totaled 37,460. Te cost of
merchandise sold was 154,900: and the overhead amounted to 112,500. What was the net profit
for the period?
30 Points