NET PROFIT

Part 12

Starter

What is meant by gross profit?

How do you calculate gross profit?

What do we mean by direct materials? Give an example.

Lesson Objective

To be able to identify different types of spending.

To be able to define net profit.

To be able to calculate net profit from a formula.

Activity 1

Using the following words, please complete the blank sheets you have been given.

You need to match the correct word with its definition!

Direct Materials

Direct labour

Direct expenses

Expenditure/expenses

Fixed Assets

Some key terms

Direct Materials – what we use to make a product.

Direct labour – the wages of the person making the

product.

Direct expenses – Value Added Tax (VAT) which we have to pay on top of our purchase price.

Expenditure/expenses – things we pay for as day-to-day running costs, but we have nothing to show for it e.g. rent, insurance, training and advertising.

Fixed Assets – Things we buy and intend to keep for many years e.g. premises, vans and machines.

Activity 2

Expenditure/expenses Fixed Assets

Tax for carPetrolHeating & LightingPostageRatesCleaning CostsSupervisor’s Wages

A new carA warehouseA computerEquipmentFurniture

L/O: To be able to identify different types

of spending.

Net Profit

The money made from selling a product after all costs (expenditure) have been deducted.

In order to work out net profit, you first of all work out the gross profit, and then deduct any other expenditure involved in making or selling it.

Net profit = Gross Profit - Expenditure

Activity 3 L/O: Calculate Net Profit from a formula

Using the following information, draw up a statement like on the example before:

A business has sales of £25,000 which costs £12,500.

It had to pay out rent of £1000, insurance at £500 and a salesman’s wages at £1000.

Activity 4 L/O: Calculate Net Profit from a formula

Activity 5 L/O: Calculate Net Profit from a formula

1. Cost of sales = £2525 + £3500

2. Gross Profit = £19250 - £6025 = £13225

3. Total Expenditure = £550 + £400 + £880 = £1830

4. Net profit = £13225 - £1830 = £11395

RecapL/O: To be able to identify different types of spending.

To be able to define net profit.

To be able to calculate net profit from a formula.