 maths > commercial-arithmetics

Introduction to Profit and Loss

what you'll learn...

overview

This page introduces the terms cost-price, sale-price, overhead-expenses, profit, and loss. It explains that the shopkeeper invested cost-price and so profit is calculated as a percent of the amount invested.

Profit percent $=100×$$= 100 \times$ (sale price - cost price) $/$$/$ cost price.

profit

A person buys a pen from a shop for $20$$20$ coins. The pen was manufactured by a company and sold to the shopkeeper. The shopkeeper does this business to make some money for his living.

For example, Shopkeeper buys a pen for $18$$18$ coins from the company that makes pens. She sells the pen for $20$$20$ coins. The difference of $2$$2$ coins is what she earns. This amount is called the profit.

The word "profit" means: gain; financial benefit.

Profit : Financial gain in a business is called the profit.

loss

Shopkeeper buys a pen for $18$$18$ coins from the company that makes pens. Due to some reasons, over next 6 months, a new variety of pen became popular and customers do not like to buy the earlier pen. So the shop keeper reduces the price of the pen to attract a buyer and sells the pen for $15$$15$ coins. The difference of $3$$3$ coins is what she lost in this business. This amount is called the loss.

The word "loss" means: amount that is taken away or lost.

Loss : Amount that is lost in a business is called the loss.

some terms

A person selling an item is called "seller".

cost-price

A shopkeeper buys a pen for $18$$18$ coins. She has paid the amount and it is the investment made. The amount paid is called "cost-price".

The phrase "cost price" means: the amount paid by the seller.

Cost Price : The original price paid by the seller to procure an item is the cost price of the item.

sale-price

A shopkeeper sells a pen for $20$$20$ coins to a buyer. The buyer has paid the amount and bought the pen. The amount paid is called "sale-price".

The phrase "sale price" means: the amount received for an item by the seller in a sale.

Sale Price : The amount received for an item is the sale price of the item.

profit percent

The profit or loss is usually given as a percentage. Let us consider a pen

• The cost price of pen is $40$$40$ coins.

• The sale price of the pen is $48$$48$ coins.

• The profit in the sale is $8$$8$ coins. To provide the profit as percentage, one of the following is used.

• The profit of $8$$8$ as percent of cost price $40$$40$ coins $=\frac{8}{40}×100$$= \frac{8}{40} \times 100$ percent

• The profit of $8$$8$ as percent of sale price $48$$48$ coins $=\frac{8}{48}×100$$= \frac{8}{48} \times 100$ percent

The seller makes the profit on the amount he/she invested. The amount invested is the cost price. So the profit percent is given as a percent of cost price.

Profit Percent : The profit as a percent of the cost-price is the profit percentage.
Profit percent $=100×$$= 100 \times$ (sale price - cost price) $/$$/$ cost price.

Loss Percent : The loss as a percent of the cost-price is the loss percentage.
Loss percent $=100×$$= 100 \times$ (cost price - sale price) $/$$/$ cost price.

A shopkeeper gets a pen for $40$$40$ coins and spends $3$$3$ coins per pen in transporting the pen to the shop and in other expenses. (some of the other expenses are, the rent for the shop, the salaries for workers, the electricity, etc.)

The term to refer to the $3$$3$ coins spent is "overhead expenses".

The word "overhead expenses" means: above the level of cost-price.

Overhead Expense : The expenses incurred in the shop on an item over the cost-price of the item is the overhead expenses.

summary

Profit : Financial gain in a business is called the profit.

Loss : Amount that is lost in a business is called the loss.

Cost Price : The original price paid by the seller to procure an item is the cost price of the item.

Sale Price : The amount received for an item is the sale price of the item.

Profit Percent : The profit as a percent of the cost-price is the profit percentage.
Profit percent $=100×$$= 100 \times$ (sale price - cost price) $/$$/$ cost price.

Loss Percent : The loss as a percent of the cost-price is the loss percentage.
Loss percent $=100×$$= 100 \times$ (cost price - sale price) $/$$/$ cost price.

Overhead Expense : The expenses incurred in the shop on an item over the cost-price of the item is the overhead expenses.

The shopkeeper invested cost-price and any overhead expenses. So profit is calculated as a percent of the amount invested.

Profit percent $=100×$$= 100 \times$ (sale price - cost price - overhear expenses) $/$$/$ (cost price + overhead expenses).

Outline