Profits & Profit Margins (Edexcel GCSE Business): Revision Note

An e-scooter manufacturer sells its products to retailers for £180 per unit. Variable costs are ⅖ of the selling price, with annual  fixed costs being £820,000. The business also pays interest of £2,600 per year on its bank loans. It sells 26,400 scooters a year. 

Calculate
(a) Gross profit for the year. (3)

(b) Net profit for the year. (2)

You are advised to show your workings.

Step 1: Calculate the variable cost per unit

$$\begin{gathered} =⅖of\pounds 180 \\ =\pounds 72 \end{gathered}$$         (1)

Step 2: Calculate the gross profit per unit

$$\begin{gathered} =\pounds 180-\pounds 72 \\ =\pounds 108 \end{gathered}$$         (1)

Step 3: Calculate the gross profit per year

$$\begin{gathered} =\pounds 108x26,400 \\ =\pounds 2,851,200 \end{gathered}$$         (1)

Step 4: Calculate the net profit

$$\begin{gathered} =\pounds 2,851,200-(\pounds 820,000+\pounds 2,600) \\ =\pounds 2,028,600 \end{gathered}$$         (2)

You may not be asked to complete all of these calculations in one question

The question may, for example, provide the Gross Profit and some other information and then ask you to calculate the net profit. Look at the data carefully to ensure you are doing the correct calculation

Head to Toe Wellbeing’s revenue in 2022 was £124,653. Its gross profit was £105,731.

Calculate Head to Toe Wellbeing Ltd’s Gross Profit Margin in 2022.

(2)

Step 1: Substitute the values into the formula

      $$\begin{gathered} \frac{\mathrm{Gross}\mathrm{Profit}}{\mathrm{Sales}\mathrm{revenue}}\times 100 \\ =\frac{\pounds 105,731}{\pounds 124,653} \\ =0.8482 \end{gathered}$$         (1)

Step 2: Multiply the outcome by 100 to find the percentage

 $$\begin{gathered} =0.8482\times 100 \\ =84.82\% \end{gathered}$$                  (1)

• 84.82% of Head to Toe Wellbeing’s revenue was converted into gross profit during 2022

Head to Toe Wellbeing’s revenue in 2022 was £124,653. Its net profit for the year was £57,596.

Calculate Head to Toe Wellbeing Ltd’s Net Profit Margin in 2022.

(2)

Step 1: Substitute the values into the formula

$$\begin{gathered} \frac{\mathrm{Net}\mathrm{Profit}}{\mathrm{Sales}\mathrm{revenue}}\times 100 \\ =\frac{\pounds 57,596}{\pounds 124,653} \\ =0.4621 \end{gathered}$$        (1 )

Step 2: Multiply the outcome by 100 to find the percentage

$$\begin{gathered} =0.4621\times 100 \\ =46.21\% \end{gathered}$$        (1 )

• 46.21% of Head to Toe Wellbeing’s revenue was converted into profit for the year