Computing

for Profits
LESSON TITLE
 II. MOST
ESSENTIAL
Demonstrate understanding of the 4
LEARNING M’s of Operations
COMPETENCI
ES (MELCs)
 • Describe net income
III.
• Differentiate gross, operating, and
CONTENT/CO net profit
RE CONTENT • Compute for profits
Introduction
If revenues and expenses should turn out to be
equal, the company will have broken even.
Net income is one of the most important
indicators of the financial health of a business.
The first is the pre-tax income, which is the
amount the company earned before taking taxes
into account.
In our previous topic, you have learned about forecast revenue and cost to
be incurred, forecasting problems, and the benefits of financial forecasting.
You were able to explain why these are important in businesses and the
objectives behind a company’s core principles.
To review this, answer briefly the following questions below.

1. What is forecasting revenue? How is it important to entrepreneurs?

2. Why do we need to forecast the cost to be incurred in a business?
3. What are the costs associated with forecasting?

With the knowledge you have right now, we will proceed with our next
lesson.
DEVELOPMENT
PROFIT/ NET INCOME

Profit describes the financial benefit realized when the revenue generated
from a business or activity exceeds the expenses, costs, and taxes involved in
sustaining the activity in question.
Any profits earned funnel back to business owners, who choose to either
pocket the cash or reinvest it back into the business.
What Does Profit Tell
You?
Profit is the money a business pulls in
after accounting for all expenses.
Whether it's a lemonade stand or a
publicly traded multinational company,
the primary goal of any business is to
earn money, therefore a business
performance is based on profitability,
in its various forms.
Figure1 https://bit.ly/3vi2XPA
Three major types of
profit
The gross profit, operating profit,
and net profit--all of which can be
found on the income statement.
Each profit type gives analysts
more information about a
company's performance,
especially when it's compared to
other competitors and periods.
Figure 2...Profit http://bit.ly/3s5v5UP
 Gross, Operating, and Net Profit
1. Gross profit is the sales minus the cost of goods sold. Sales are the first line item on the
income statement, and the cost of goods sold (COGS) is generally listed just below it.
Formula: Gross Profit=Total Sales−COGs

2. Operating profit is calculated by deducting operating expenses from gross profit. Gross
profit looks at profitability after direct expenses, and operating profit looks at profitability after
operating expenses.
Formula: Operating Profit=Gross Profit−Operating Expenses

3. Net profit is the income left over after all expenses, including taxes and interest, have
been paid.
Formula: Net Profit=Operating Profit−Taxes & Interest
(For more information, click the link below) LINK:
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Computing for
Profit
The simplest formula in computing the profit is by subtracting
total expenses from total revenue.
The computation of profit is by deducting direct costs and
indirect costs (also known as overheads) from sales (Informi,
2020).
Direct costs are expenses that directly go into producing goods
or providing services such as labor, materials, and other
manufacturing supplies; while indirect costs are the general
business expenses that keep the business operations such as
rent, utilities, and general office expenses (Blakely-Gray,2018)
This simplest formula is total
revenue – total expenses = profit.

•Figure 3. Net Profit.

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Profit is calculated by deducting direct
costs, such as materials and labor, and
indirect costs (also known as
overheads) from sales.

Based on the normal accounting guidelines,

sales and expenses are included in profit on
the day they occur, not on the day of actual
payment so profit will include credit sales
and purchases even when they are not yet
paid.
Here is an
example
A business buys 3,000 of stock in October and
agrees to pay for it in three months. It sells the stock
in the month in which it was purchased (October)
for 5,000 cash. The profit for the month is 2,000.
Even the reality that the stock was not paid for
immediately is not important when calculating
profit.
 Learning Task 1. Compute for Profit. Based on the
given data, compute for the profit using the formula
discussed earlier

Sales 50,000.00
Paid Rent : 2,500.00
Paid utility fees : 4,679.18
Supplies : 10,789.86
Delivery cost : 589.00
Employees’ salary
A. :450.00 (15days) (4
persons)
B. : 650.00 (15days) (1
person)
Income :?
INDIVIDUAL TASK
 Learning Task 2. Graphic Organizer

Gross

Explain the similarities and

differences between gross,
PROFIT operating, and net profit.
Operating Net

INDIVIDUAL TASK
 CRITERIA EXCELLENT GOOD SATISFACTORY NEEDS
IMPROVEMENT
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QUIZ # 3 VIA GOOGLE
FORM
December 10, 2021

8:00 am to 8:30 am
REFLECTION
In a separate sheet of paper, write your personal
insights about the lesson using the prompts below.

I understand that ___________________.

I realize that ________________________.
I need to learn more about __________.