Definition of Gross Profit
According to the general meaning, gross profit is income from sales. The income in question is sales income before deducting overhead costs, employee salaries, taxes and interest payments.
This means that in gross profit there are profits as well as costs for making products or production as well as costs for providing services. If it is related to the definition above, then gross profit still cannot be called pure profit from sales.
While the definition of gross profit in particular or what is often called Gross Profit is the amount of net sales after experiencing a reduction in Cost of Goods Sold which is abbreviated as HPP.
In this sense, as long as the production costs of products and services have been accounted for, the income can be categorized as gross profit. As for taxes, salaries and interest rate fees are not included in this income.
From this definition, it can be concluded that gross profit is income from sales which has been deducted by the cost of responsibility for the production of products and services but has not been deducted by costs for salaries, taxes and interest payments.
How to Calculate Gross Profit
To calculate gross profit, you can use a simple formula, namely income minus COGS. Revenue is the result or profit from sales. While HPP is the cost of production to produce products and services.
With the HPP, of course, determining product prices is easier. So that it will be clearer how much gross income is received by the company or businessman.
If you look at the formula above, then the way to calculate gross profit can be analogous to the case below:
PT. ABCDE has Income Statement information with the following list.
- Net Sales: IDR 100 million
- HPP: IDR 40 million
- Marketing fee: IDR 10 million
- Administrative costs: IDR 10 million
- Tax: IDR 5 million
To calculate the gross profit received by PT ABCDE according to the case above, it can be calculated in the following way:
Conditions for the Company to Get Profit
Income = IDR 100 million
HPP = Rp40 million
Gross Profit Calculation = Revenue – COGS
= IDR 100 million – IDR 40 million = IDR 60 million
With the calculation above, it can be easily read how to calculate gross profit. Including gross profit which is actually detrimental to the company as well as those that provide benefits. When viewed from the calculation above, how to calculate gross profit is very simple and easy because there is no need to calculate other expense components such as marketing costs, administrative costs, or taxes. And this is what distinguishes it from net income
The question is why does gross profit need to be calculated? To answer this question, below will explain the reasons in the heading of the benefits of calculating gross profit. Here is the explanation:
Benefits of Calculating Gross Profit
It was explained earlier that the definition of gross profit is the company’s income after production costs have been paid but have not been deducted from salaries, taxes and interest rates. Of course, with this calculation, it can be clearer whether your company has provided a clear profit or loss.
Therefore, it is necessary to do a calculation to find out. If the real thing is profit, especially if it has been deducted by taxes, salaries and interest rates, it means that it has become the company’s profit.
Factors Influencing Gross Profit
There are several factors that affect the appearance of gross profit. Here’s an explanation of these factors:
1. Product Selling Price Factor
The first factor for the emergence of gross profit is the selling price of the product. Of course, the higher the price of the product to be sold, the greater the profit the company will receive.
In addition, the difference in selling prices in a certain period also determines the appearance of gross profit income. The higher the selling price, the greater the gross profit received by the contract.
This is also the reason why each period the gross profit generated is always different. The reason is simple because the selling price of the product per period is also different.
2. Item Quantity Factor
The second factor that affects gross profit is the number of products or services. This means that the more the number of goods or services sold, the chance of getting a profit is also higher.
On the other hand, if the number of products produced is small, the gross profit obtained is also small compared to the large number of products.
3.Cost of Goods Sold Factor
The third factor is the cost of goods sold, which is abbreviated as HPP. That is, if the cost of goods sold is fixed and in balance with the selling price of the product, of course the profit generated will also be even greater.
Another matter, if the cost of goods sold increases, but the selling price of the product is still stagnant, of course the profit generated will be less. This has the potential to lead to an adverse gross profit.
Ideally, the cost of goods sold should be less than the selling price. Because if it is reduced later, then the gross profit that appears is profit. Of course, a partial profit because it still has not been deducted from salaries, taxes and interest rate financing.
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