In profit and loss, the activity of buying things from one place and selling them at another place is known as business.
Sam is a shopkeeper. He buys the following articles from a wholesale market at the following rates:
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
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.
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
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.