How Do I Work out the Cost of a Sale for Net Profit?

This article explains how to work out the Cost of Sale for Net Profit

It's important to calculate the "cost of sale" figure in any business in order to work out the net profit and therefore provide an analysis of how the business is really doing.

Firstly, lets identify what these terms really mean. The cost of sale figure, for example, is defined as the wholesale cost of the product sold.

The cost of sale figure is found by finding total income minus the cost of goods sold. Cost of goods sold can be found by adding the purchases to the starting stock and subtracting the finishing stock.

The gross profit is found by using the income less the cost of sale. 

Working out cost of sale for net profit can be worked out by subtracting the admin costs from the gross profit.

Working out the Cost of Sale figure to calculate your Net Profit:

Cost of Sale = (Purchases + Starting stock) - Finishing stock

Gross Profit = Income - Cost of Sale

Net profit = Gross profit - Admin costs

Example - 

• Stock increasing:  £30,000 + (£20,000 - £10,000) - £10,000 = £30,000 profit
• Stock the same:    £30,000 + (£10,000 - £10,000) - £10,000 = £20,000 profit 
• Stock decreasing: £30,000 + (£10,000 - £20,000) - £10,000 = £10,000 profit