Gross profit ratio of a company was 25%, its credit revenue from operations was Rs. 20,00,000 and its cash revenue from operations was 20% of the total revenue from operations. If the indirect expenses of the company was Rs. 50,000. Calculate its net profit.
Gross profit ratio of a company was 25%, its credit revenue from operations was Rs. 20,00,000 and its cash revenue from operations was 20% of the total revenue from operations. If the indirect expenses of the company was Rs. 50,000. Calculate its net profit.
Solution
Finding Total Revenue from Operations:
Cash revenue from operations = 20% of total revenue
This means credit revenue from operations = 80% of total revenue
80% of Total Revenue = Rs. 20,00,000
Total Revenue from Operations = = Rs. 25,00,000
Calculating Gross Profit:
Gross Profit Ratio =
25% =
Gross Profit = = Rs. 6,25,000
Calculating Net Profit:
Net Profit = Gross Profit - Indirect Expenses
Net Profit = 6,25,000 - 50,000 = Rs. 5,75,000
The relationship to understand here is that gross profit is reduced by indirect expenses (operating expenses like office expenses, selling expenses, etc.) to arrive at net profit. Direct expenses are already deducted while calculating gross profit.
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