Page 271 - Cambridge IGCSE Business Studies

21: Income statements

KEY TERM The formula for calculating revenue is:
Revenue = selling price × quantity sold
Cost of sales: the cost of
purchasing the goods used to The total cost to a business of supplying its goods and services can be divided into

make the products sold.
cost of sales and expenses.

ACTIVITY 21.1

Chata owns a small bakery. He only makes bread. Chata’s main items of expenditure are listed below. Separate the list of
items into costs of sales and expenses.
■ Flour
■ Electricity
■ Yeast
■ Rent
■ Advertising
■ Water
■ Machinery repairs
■ Salt

KEY TERM The formula for calculating gross profi t is:
Gross profi t = revenue − cost of sales
Expenses: day-to-day operating
expenses of a business. Another formula for calculating profi t is: 269
Profi t = gross profi t − expenses

EXAMPLE

Chata sells the loaves of bread he makes in his bakery for $0.30 each. In June, Chata sold 1,500 loaves of bread. Chata has
calculated his cost of sales for June to be $150 and his expenses for the month to be $100.
We can use this information to calculate Chata’s gross profit and profit for June.

Chata’s revenue will be:
Selling price × quantity of loaves sold
$0.30 × 1,500 = $450

Chata’s gross profit will be:
Revenue − cost of sales
$450 − $150 = $300

Chata’s profit will be:
Gross profit − expenses
$300 − $100 = $200

Note: If we only wanted to calculate Chata’s profit, without calculating gross profit, then we could have used the first profit
formula:
Profit = revenue − total costs

Profit = $450 − ($150 + $100) − $200