The overhead charges become a part of the cost price.
Suppose a person buys some goods from California for $4500 and sells them in New York for $5700; it seems as the person has made a profit = $5700 - $4500 = $1200
So, does he actually gain $1200 on this transaction?
It is not true because the person must have definitely spent some money on:
(i) his travelling from New York to California and then back to New York;
(ii) transportation of the goods bought, etc.
Because of these extra expenses (which is known as overheads), the actual profit made by the person becomes less than $1200. Sometimes, he may even have loss in such a transaction if the overhead expenses exceed $1200.
Cost price (C.P.) = Payment made while purchasing the articles + overhead charges (i.e. extra expenses).
Solved example to calculate overhead charges:
1. Mike buys some electronic goods from a wholesaler for $650 and spends $100 on its transportation's, etc. If he sells these electronic goods for $900; find the profit or loss made by him and express it as percent.
Since, the Mike buys electronic goods for $650 and spends $100 on it transportation.
The total cost price of electronic goods for Mike = $650 + $100 = $750
Given, selling price = $900; [which is more than total C.P.]
Therefore, profit = $900 - $750 = $150
Also, profit% = (profit/total cost price) × 100%
= 150/750 × 100%
2. A trader at Texas buys a television for $7000 from Florida and sells it in Texas for $7600. If his overhead expenses amount to $1000; find his profit or loss in this transaction and express it as percent.
Total C.P. of the television for trader = $7000 + $1000 = $8000
Given, S.P. = $7600; [which is less than total cost price]
Therefore, loss = $8000 - $7600 = $400
Also, loss% = (loss/total C.P.) × 100%
= 400/8000 × 100%
Discount and Discount Percent
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● Profit And Loss - WorksheetsWorksheet on Calculating Overhead Charges