Profit And Loss And Balance Sheets Page 3
ADVERTISEMENT
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26This works for retail businesses.
But for
Calculating Gross Profits
manufacturing, you need to think about
Sales
Cost of sales
-
’cost of production’, and that means taking
=
Gross profit
off completed products (ready to be sold)
and incomplete (work in progress).
Opening stock
+
Purchases
-
Closing stock
=
Costs of sales
Cost of sales is:
Value of stock (raw materials)
Gross profit
/
Sales
x
100
+
=
Gross profit margin (%)
Materials bought in this time
-
Calculating Depreciation
Value of stock at end of time
Equipment wears out and has to be
+
replaced. That costs the business money.
Direct costs related to production
You should allow for that. For instance, you
(wages, power etc)
may buy a computer for £1,000 and have
+
to replace it in 5 years. To get the same
Work in progress
amount of money ready for that, you’ll
+
have to put aside £200 per year.
Value of products at start of period
Also, how much is that computer worth right
-
now? If it’s only going to last a few years, it
Value of products at end of period
will be worth less each year.
=
How Do You Work Out Depreciation?
Costs of production/cost
1 : The Straight Line Method
of sales for period
It’s the original cost or value of the
computer divided by its life in years.
Don't forget: your stock of
raw materials
is
A computer with a value of £1000 and a
valued at what you paid for them, even if
life of five years loses £1000
/
5
=
£200
that is more
or
less than what you could get
per year. That’s how much it depreciates.
for them.
2 :
Or, we could allow 20% off the
(decreasing) value each year. That means
it’s 20% off £1,000 this year, and 20% off
£800 next year...
P 215
ADVERTISEMENT
0 votes
Related Articles
Related forms
Related Categories
Parent category: Business