How to Work Out the Gross Profit on a Selling Price

Calculating gross profit

Gross profit for an organization is sales minus cost of merchandise sold on a financial statement. When looking at an individual item, gross profit equals selling price minus the cost to originally purchase the product. Gross profit does not factor in items that net profit or income take into account. These factors include overhead, interest and any other items not directly related to selling the product.

Instructions

1. Determine the selling price of the product. This is the price for an individual or group of products that you are selling to an outside consumer. For example, Firm XYZ is selling a widget for $50,000.

2. Determine the cost of the product. The product cost is the amount the firm paid for the product. In the example, Firm XYZ paid $20,000 for a widget, which the firm plans to sell.

3. Subtract the cost of the product from the selling price to determine gross profit. In the example, $50,000 minus $20,000 equals a $30,000 gross profit.

References

• Investopedia: Gross Profit