## Friday, November 30, 2018

### Calculating the Est. Gross Profit and Est. Gross Profit Percent when Discount is Applied

The standard formula in calculating the Estimated Gross Profit is as follows:

Sales –Est. Extended Cost = Est. Gross Profit

Where:

Sales = refers to the total quantity multiplied with the unit price of the item

Est. Extended Cost = based on the Cost Estimate Type of the item multiplied with total quantity of the item

While to get the Est. Gross Profit Percent, we use this formula:

Est. Gross Profit / Sales = Est. Gross Profit Percent

To better illustrate, take this example:

Item A

Quantity = 1

Sales Price = \$ 15.00

Est. Extended Cost = \$ 9.00

Est. Gross Profit = \$ 6.00 (\$ 15.00 – \$ 9.00)

Est. Gross Profit Percent = 40% (\$6.00 / \$ 15.00)

In addition, the formula will vary if there is a discount applied to the transaction. The Est. Gross Profit will now be calculated based on the following:

Sales – Discount – Est. Extended Cost = Est. Gross Profit

Est. Gross Profit / (Sales – Discount) = Est. Gross Profit Percent

In the given example above and a discount for \$2.00, we will get the following results:

Est. Gross Profit = \$ 4.00 (\$15.00 - \$ 2.00 - \$ 9.00)

Est. Gross Profit Percent = 30.77% (\$ 4.00 / \$ 13.00 (\$15.00 - \$ 2.00))