In profit and loss, the activity of buying things from one place and selling them at another place is known as business.
Explanation I:
Sam is a shopkeeper. He buys the following articles from a wholesale market at the following rates:
Article
Water Bottle
Pen
Pencil Box
Lunch Box
Ball
Purchased at
$ 45
$ 10
$ 25
$ 30
$ 5
Sold at
$ 60
$ 25
$ 35
$ 55
$ 8
Rate at which an article is purchased is called Cost Price (C.P.)
Rate at which an article is sold is called Selling Price (S.P.)
Sam purchases the water bottle for $ 45. He sold it for $ 60.
Here, cost price = $ 45
Selling price = $ 60
Thus, earning $ 60  $ 40 = $ 20 more
The extra money earned by selling an article is called profit or gain.
When Selling Price (S.P.) is greater than the Cost Price (C.P.) we have a gain (Profit).
Sam purchases the pencil box for $ 25. There were some defects in the pencil box.
So, he sold it for $ 20.
Here, Cost Price = $ 25
Selling Price = $ 20
Thus, lost $ 25  $ 20 = $ 5
The money lost by selling an article is called Loss.
When Cost Price (C.P.) is greater than the Selling Price (S.P.) we have a loss.
Profit or Gain = S.P.  C.P. = Selling Price  Cost Price
Loss = C.P.  S.P. = Cost Price  Selling Price
Explanation II:
Ron is a shopkeeper. He buys his goods either from the factory directly
or from the whole seller. He then tries to sell each of goods or item at
a higher price to earn money. If he succeeds, he makes a profit or gain
or else he suffers a loss.
For example:
1. If Ron buys rice at $ 20 per kg and sells it at $ 23 per kg, he makes a profit of $ 3. (i.e., 23  20 = 3)
Cost price (CP) = $ 20,
Selling price (SP) = $ 23
Profit or Gain = $ 20
2. If Ron buys rice at $ 20 per kg and sells it at $ 18 per kg, he suffers a loss of $ 2 i.e., (20 – 18 = 2)
Cost price (CP) = $ 20,
Selling price (SP) = $ 18
Loss = $ 2
From this we understand:
(i) The price at which a man buys his goods is called the Cost Price (CP).
(ii) The price at which a man sells his goods is called the Selling Price (SP).
(iii) When the SP is greater than CP the man makes a Profit or Gain.
SP > CP → Profit = SP – CP
(iv) When the SP is less than CP the man suffers a Loss.
SP > CP → Loss = CP – SP
For example:
1. Ron bought rice worth $ 2000 and spent $ 200 for transporting it to his shop, $ 150 on getting it cleaned and $ 50 on packing.
Then total CP = 2000 + 200 + 150 + 50 = $ 2400.
(v)
Transportation charges, labour charges, salaries etc. are called
Overhead Expenses and these are always added to the cost price to get
the total CP.
To find Cost Price or Selling Price when Profit or Loss is given.
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