CONCEPT 1:
PROFIT AND LOSS FORMULA:
1. Profit and loss are a part of every day transactions. The term 'cost price' and 'selling price' are used at every stage of goods exchanging hands.
2. The price at which a person buys (or produces) a product is called the 'cost price' (CP) of the product w.r.t to that person and the price at which a person sells a product is the sales price or the 'selling price' (SP) of the product again w.r.t that person.
3. At each stage, the cost price for a person becomes the selling price for another. For example, if Amit buys apples at Rs. 75/kg form the wholesaler and sells them to Sumit at Rs. 80/kg, then for one kg of apples that exchanged hands between the wholesaler, Amit and Sumit,
The wholesaler's selling price = Rs.75 which becomes the cost price for Amit
Amit's selling price = Rs. 80 becomes the cost price of Sumit.
4. When a person is able to sell a product at a price higher than its cost price for him, then we can say that he has earned profit.
Profit = Selling price - Cost price
5. Similarly, if a person is able to sell an item for a price lower than its cost price for hime, we say that it is a loss (L)
Loss = Cost price - Selling price
CONCEPT 2:
PERCENTAGE PROFIT OR LOSS:
1. We often need to compare gains and losses of business transactions.
2. Percentage profit = (Selling price - Cost price)/Cost price *100
3. Percentage loss = (Cost price - Selling price)/ Cost price *100
We must always determine the percentage profit on the cost price of an item, unless it is stated otherwise in the question.
4. Selling price = [(Percentage profit/100) +1 ] *100
5. Cost price = (Selling price *100 )/ (Percentage profit+100) => When there is profit
6. Cost price = (Selling price *100)/ (100- Percentage loss) => When there is loss
7. Percentage profit = [ (SP/CP) - 1)]*100
CONCEPT 3:
TYPES OF COSTS:
1. If two items are sold for the same SP, one at a gain of a% and the other at a loss at a%, then there is an overall loss and the loss percentage = a^2/100
2. Direct costs/ variable costs: These are costs that apply to each produced commodity. They are called variable costs because these costs vary depending on the number of units of goods produced/sold.
For example, costs such as the amount spent in buying raw materials for one unit of the product, or the amount paid to a salesman who is paid on a piece wise basis are direct costs.
3. Indirect costs/Fixed costs (Overhead costs): These are costs that remain constant. For example, costs such as rent paid for office space, monthly wages paid to employees etc.
CONCEPT 4:
BREAK-EVEN POINT:
1. When the total sales revenue earned from the selling of certain number of products equal to the total cost incurred in producing/purchasing that number of units (includes fixed cost and variable cost), then there is neither profit nor a loss.
2. In this situation, the entity involved in the transaction is said to have 'broken even', and the sales value in terms of the number of units sold is called the break-even point or break-even sales.
3. In other words, the break-even point is the number of units of a product to be sold to recover the costs.
4. Hence, if n is the number of units at which the entity breaks even, then,
Selling price of one unit * n = (Variable cost of one unit * n) + Total fixed costs
5. n (Break-even point) = Total fixed costs / (Selling price - Variable cost) for one unit.
6. Selling price - Variable cost for one unit = unit contribution margin.
7. At the break-even point, the fixed costs = Unit contribution margin * n (Total contribution)
8. Usually, the selling price is more than the variable cost associated with each unit. Hence, every unit sold beyond the break-even point contributes to the profit of the company.
Profit = (Total units sold - Break-even point) * unit contribution margin.
And if the total units sold is less than the break-even point, then a loss has been incurred.
CONCEPT 5:
FALSE WEIGHTS:
1. If an item is claimed to be sold at cost price, using false weights, then the overall percentage profit is given by,
Percentage profit = [(Claimed weight of the item/ Actual weight of the item)-1]*100
CONCEPT 6:
MARKED PRICE AND DISCOUNT:
1. The discount between selling price of a good and its cost price is known as markup.
2. Manufacturers add a markup to the cost price of an item in order to make profits. The price that is written on an article or written on the label attached to it is the sum of the cost price and the markup, and is called as the marked price => Marked price = Cost price + Markup
or Marked price = Cost price + (Markup, as a percentage/100) * Cost price
Generally, MP = SP.
3. However, sometimes, in order to increase sales or to sell of the old stock, the retailers reduce the marked price of an article by a certain amount called Discount. In this case, selling price will be the reduced price
=> Selling price = Marked price - Discount
4. Similar to markup, discount can also be represented both as an amount and as a percentage
Selling price = Marked price - (Discount, as a percentage/100) * Marked price
5. Discount percentage = (Discount/ Marked price) *100
6. SP/MP = 1- (Discount percentage/100)
CONCEPT 7:
BUY X AND GET Y FREE:
1. If articles worth Rs.x are bought and articles worth Rs. y are obtained free along with the Rs.x article, then the discount is equal to Rs.y and the discount percentage is given by
Discount percentage = [y/ (x+y)] *100
2. Successive discounts => When a discount of a% is followed by another discount of b%, then the total discount is given by (a + b + (ab/100)) %
PROFIT AND LOSS FORMULA:
1. Profit and loss are a part of every day transactions. The term 'cost price' and 'selling price' are used at every stage of goods exchanging hands.
2. The price at which a person buys (or produces) a product is called the 'cost price' (CP) of the product w.r.t to that person and the price at which a person sells a product is the sales price or the 'selling price' (SP) of the product again w.r.t that person.
3. At each stage, the cost price for a person becomes the selling price for another. For example, if Amit buys apples at Rs. 75/kg form the wholesaler and sells them to Sumit at Rs. 80/kg, then for one kg of apples that exchanged hands between the wholesaler, Amit and Sumit,
The wholesaler's selling price = Rs.75 which becomes the cost price for Amit
Amit's selling price = Rs. 80 becomes the cost price of Sumit.
4. When a person is able to sell a product at a price higher than its cost price for him, then we can say that he has earned profit.
Profit = Selling price - Cost price
5. Similarly, if a person is able to sell an item for a price lower than its cost price for hime, we say that it is a loss (L)
Loss = Cost price - Selling price
CONCEPT 2:
PERCENTAGE PROFIT OR LOSS:
1. We often need to compare gains and losses of business transactions.
2. Percentage profit = (Selling price - Cost price)/Cost price *100
3. Percentage loss = (Cost price - Selling price)/ Cost price *100
We must always determine the percentage profit on the cost price of an item, unless it is stated otherwise in the question.
4. Selling price = [(Percentage profit/100) +1 ] *100
5. Cost price = (Selling price *100 )/ (Percentage profit+100) => When there is profit
6. Cost price = (Selling price *100)/ (100- Percentage loss) => When there is loss
7. Percentage profit = [ (SP/CP) - 1)]*100
CONCEPT 3:
TYPES OF COSTS:
1. If two items are sold for the same SP, one at a gain of a% and the other at a loss at a%, then there is an overall loss and the loss percentage = a^2/100
2. Direct costs/ variable costs: These are costs that apply to each produced commodity. They are called variable costs because these costs vary depending on the number of units of goods produced/sold.
For example, costs such as the amount spent in buying raw materials for one unit of the product, or the amount paid to a salesman who is paid on a piece wise basis are direct costs.
3. Indirect costs/Fixed costs (Overhead costs): These are costs that remain constant. For example, costs such as rent paid for office space, monthly wages paid to employees etc.
CONCEPT 4:
BREAK-EVEN POINT:
1. When the total sales revenue earned from the selling of certain number of products equal to the total cost incurred in producing/purchasing that number of units (includes fixed cost and variable cost), then there is neither profit nor a loss.
2. In this situation, the entity involved in the transaction is said to have 'broken even', and the sales value in terms of the number of units sold is called the break-even point or break-even sales.
3. In other words, the break-even point is the number of units of a product to be sold to recover the costs.
4. Hence, if n is the number of units at which the entity breaks even, then,
Selling price of one unit * n = (Variable cost of one unit * n) + Total fixed costs
5. n (Break-even point) = Total fixed costs / (Selling price - Variable cost) for one unit.
6. Selling price - Variable cost for one unit = unit contribution margin.
7. At the break-even point, the fixed costs = Unit contribution margin * n (Total contribution)
8. Usually, the selling price is more than the variable cost associated with each unit. Hence, every unit sold beyond the break-even point contributes to the profit of the company.
Profit = (Total units sold - Break-even point) * unit contribution margin.
And if the total units sold is less than the break-even point, then a loss has been incurred.
CONCEPT 5:
FALSE WEIGHTS:
1. If an item is claimed to be sold at cost price, using false weights, then the overall percentage profit is given by,
Percentage profit = [(Claimed weight of the item/ Actual weight of the item)-1]*100
CONCEPT 6:
MARKED PRICE AND DISCOUNT:
1. The discount between selling price of a good and its cost price is known as markup.
2. Manufacturers add a markup to the cost price of an item in order to make profits. The price that is written on an article or written on the label attached to it is the sum of the cost price and the markup, and is called as the marked price => Marked price = Cost price + Markup
or Marked price = Cost price + (Markup, as a percentage/100) * Cost price
Generally, MP = SP.
3. However, sometimes, in order to increase sales or to sell of the old stock, the retailers reduce the marked price of an article by a certain amount called Discount. In this case, selling price will be the reduced price
=> Selling price = Marked price - Discount
4. Similar to markup, discount can also be represented both as an amount and as a percentage
Selling price = Marked price - (Discount, as a percentage/100) * Marked price
5. Discount percentage = (Discount/ Marked price) *100
6. SP/MP = 1- (Discount percentage/100)
CONCEPT 7:
BUY X AND GET Y FREE:
1. If articles worth Rs.x are bought and articles worth Rs. y are obtained free along with the Rs.x article, then the discount is equal to Rs.y and the discount percentage is given by
Discount percentage = [y/ (x+y)] *100
2. Successive discounts => When a discount of a% is followed by another discount of b%, then the total discount is given by (a + b + (ab/100)) %
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