Part 12 Net Profit.

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Presentation transcript:

Part 12 Net Profit

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 labour Expenditure/expenses Direct expenses Fixed Assets Direct Materials

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.

L/O: To be able to identify different types of spending. Activity 2 L/O: To be able to identify different types of spending. Expenditure/expenses Fixed Assets Tax for car Petrol Heating & Lighting Postage Rates Cleaning Costs Supervisor’s Wages A new car A warehouse A computer Equipment Furniture

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

L/O: Calculate Net Profit from a formula 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.

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

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

Recap L/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.