XV

PROFIT AND LOSS

221. Business Motives. The first business principle is to buy at one price and sell at a higher price. Often the commodities bought are changed very much into others that are sold. For instance, the shoe manufacturer buys leather, nails, thread, blacking, and so on, and in addition he buys labor. All these he turns into shoes, which he sells. The jobbers and large wholesalers buy the shoes put out by the manufacturer. The jobbers sell to the small wholesalers and to the large retail stores. Wholesalers sell to retailers, who in turn sell to the consumers.

222. Net and Gross Costs. The price that the retail dealer pays for the shoes, mentioned above, is called the prime or net cost. To this is added freight, drayage, and any other expenses (buying expenses) necessary to placing the shoes upon the shelves ready to sell, which is called gross cost.

223. Gross and Net Profits. Gross profit equals sales less gross cost. From this must be deducted all selling expenses, as was discussed in the last chapter. In equations these become:

Net profit equals selling price less net cost and total ex

penses, or

NPS (NC + Texp).

(5)

EXERCISES

State what is bought and what is sold by the men conducting the following establishments:

1. Bakery. 3. Meat-market. 5. Sawmill.

2. Grocery.

4.

Bank.

6. Shoe-repair shop.

State as far as possible what is bought and what is sold by the following:

13. A merchant bought goods for $ 1650 which he sold for $2364.50. Find the gross profit.

his expenses were $219.75.

14.

Find the net profit if

A house was bought for $2650 and $ 328 spent in repairing it. It was later sold for $3400. Find the gross cost and the net profit.

15. A merchant sold goods for $1267, for which he paid

867. What were his gross and his net profits if his total expenses were $ 187 ?

16. What is the gross yearly income from a house that rents for $45 per month? If the yearly expenses are

$167.50, what is the net yearly income?

17. Explain fully equation (1) on the preceding page. Solve it for net cost; for buying expenses.

18. Explain fully equation (2). Solve it for sales; for gross cost price.

19. A dry-goods merchant bought a bill of goods at $32.50, upon which he estimated a gross profit of $6.50. Find the selling price.

20. The gross cost of a bill of goods was $ 1965 and the selling price $2645. Find the gross profit. If the selling expense was $ 243, what was the net profit ?

21. Explain fully equation (3) on page 178. How is equation (4) obtained from (3)? Solve (3) for sales; for gross cost price; for selling expense.

22. If goods are sold at a loss, what is the relation between selling price, selling expense, and gross cost? What sort of a number will NP be in equations (3) and (4)?

23. A merchant bought goods for $ 1975 and sold them for $2132.50. Find the net gain if his expenses in selling the goods were $ 219.

24. Find the net profit, called operating revenue, for each railroad according to the following statistics for 6 mo.: Gross income Total expenses

R. R. systems

C. B. & Q..

Erie.

Southern Pacific.

Great Northern..

Northern Pacific.

25. Read the above numbers to the nearest million. Operating revenue is what per cent of gross income for each road? Arrange the roads in order according to this per cent.

26. A grocer charges 25 ¢ per can or $ 2.75 per dozen for peas. How much is saved by buying 3 doz. at one time? How many dozen must be bought to save $3? to save $1.50? to save $4.50?

27. How many cans must be bought at the rate given in Ex. 26 so as to save 1 doz. cans at the price of a single can ?

28. Which is better and how much-to pay $1.75 per yard for dress goods or $ 1.45 per yard for a remnant of 7 yd. if only 6 yd. are needed, providing the quality is the same?

29.

Would you rather receive $5.40 per week or $ 20.80

per month?

224. Selling Expense. It was found in the last chapter that the greatest expense is that designated as selling expense. One year a grocery store sold goods for $ 64,000 which cost $49,500 when placed in the store. The net. profits were $6100. From equation (3), page 178, find the total selling expense. Unless price of labor and other items change, the selling expenses for the next year can be estimated to be the same per cent of the gross cost as they were for the present year. Stated as an equation this is:

Hence, equations (3) and (4), page 178, become:

(1)

1. It costs a department store 18% of the cost price of a certain class of articles to sell them. Find the total selling expense of articles whose gross cost price is 90 ; $ 2.40; $16.50; $35.

2. What will be the selling expense, which is 15% of the gross cost, of an article whose gross cost is $5.46? $2.35? 96 ¢? $45.75? For what must these articles be sold before any profit will result?

A dry-goods store one year sold goods whose gross buying price was $46,500, sales $63,700, and net profit $4900. Find the total sales expense. Find the per cent of sales expense.

4. Solve equation (1) above for per cent of selling expense.

5. Find the per cent of selling expense of the grocery store mentioned in Art. 224.

225. Per Cent of Profit or Loss.-One merchant invested $1200 and made a net profit of $ 200, while another merchant invested $400 and made a net profit of $ 80. Which made the better investment? While a gain of $ 200 is more than a gain of $ 80 this difference alone does not show which is the better investment. Suppose that the second merchant had invested $1200 at the same rate of gain as he invested the $ 400, what would have been his gain? The first merchant gained only 163 % of the amount invested, while the second merchant gained 20% of the amount invested.

Hence, to compare the profitableness of investments we find the per cent of profit. This per cent of profit is variously computed. In the above we found the per cent of the investment that was earned. Merchants often find what per cent the gain is of the selling price. The per cent of profit may be computed either upon the buying price or upon the selling price, but whichever is used must be stated definitely. To say that 15% was gained is ambiguous. Explain.

226. Equations of Per Cent.-If the net profit is found as a per cent of the gross cost, or investment, then

If selling expense is given as a per cent of gross cost,

Sexp GC

=

%Sexp

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S= GC + GC × %P +GC × %Sexp, (7)

· GC(1 + %P + %Sexp).

=

(8)