Scenario
What is the Standard Formuls to calculate Estimated Gross Profit?
Solution
The standard formula in calculating the Estimated Gross Profit is as follows:
Sales –Est. Extended Cost = Est. Gross Profit
Where:
- Sales = refers to the total quantity multiplied with the unit price of the item
- Est. Extended Cost = based on the Cost Estimate Type of the item multiplied with total quantity of the item
While to get the Est. Gross Profit Percent, we use this formula:
Est. Gross Profit / Sales = Est. Gross Profit Percent
To better illustrate, take this example:
Item A:
Quantity = 1
Sales Price = $ 15.00
Est. Extended Cost = $ 9.00
Est. Gross Profit = $ 6.00 ($ 15.00 – $ 9.00)
Est. Gross Profit Percent = 40% ($6.00 / $ 15.00)
In addition, the formula will vary if there is a discount applied to the transaction. The Est. Gross Profit will now be calculated based on the following:
Sales – Discount – Est. Extended Cost = Est. Gross Profit
Est. Gross Profit / (Sales – Discount) = Est. Gross Profit Percent
In the given example above and a discount for $2.00, we will get the following results:
Est. Gross Profit = $ 4.00 ($15.00 – $ 2.00 – $ 9.00)
Est. Gross Profit Percent = 30.77% ($ 4.00 / $ 13.00 ($15.00 – $ 2.00))