Mark Essay

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Assignment 1 Question 1 Ellie works for a medium-sized family-owned firm. Her majority income based on bonuses, and the bonuses were based on the final profit of the responsibility centre. Ellie was not satisfied with this arrangement. According to the information, now I answer the three questions. Answer A. Gross Profit = Revenue - Cost of goods sold Final Profit = Revenue - Cost of goods sold - Overhead - Interest Payable = Gross Profit - Overheads - Interest Payable Gross profit or sales profit is the total earning that a business made after deducting costs directly used to generate this earnings. The costs are direct materials cost and direct labor costs. In the other words, sales profit or gross profit is the remaining revenue after deducting cost of goods sold (COGS) before deducting payroll, overhead, taxation and interest expense. Note that sales profit and gross profit is different with operating profit (earnings before taxation and interest) because sales profit or gross profit is only deduct cost of goods sold (COGS) from revenue but operating profit deduct operating expense (including COGS and overhead) as a whole from operating revenue (start-investing 2009). Final profit or net profit is actual profit for the company after deducting all the expenses from total revenue in the given financial period of time. Final profit or net profit is also referred as net earnings since it is the actual income or earnings after deducting all the expenses such as cost of goods sold (COGS), interest payable ,overhead plus/minus one off items for a financial period (usually one year) . If the outcome of final profit or net profit is negative figure after deducting all the expenses, then it is called net loss (start-investing 2009). Therefore, as the gross sales are in control of the sales team and responsibility centers, the figure fluctuation of the

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