Profits & Profit Margins (Edexcel GCSE Business)

An e-scooter manufacturer sells its products to retailers for £180 per unit. Variable costs are ⅖ of the selling price, with annual  fixed costs being £820,000. The business also pays interest of £2,600 per year on its bank loans. It sells 26,400 scooters a year. 
 

Calculate the businesses
(a) Gross profit for the year. (3 marks)

(b) Net profit for the year. (2 marks)

You are advised to show your workings.
  

Step 1: Calculate the Gross Profit (Sales revenue - cost of sales)

1. 1. Calculate the variable cost per unit
      ⅖ of £180           =           £72                   (1 mark)
      
      

   2. Calculate the gross profit per unit (selling price - variable cost per unit)
      £180 - £72          =           £108                 (1 mark)
      
      

   3. Calculate the gross profit per year (gross profit per unit x units sold)
      £108 x 26,400       =          £2,851,200        (3 marks for the correct answer)
      
      

       

Step 2: Calculate the Net Profit (Gross profit - (Operating Expenses + interest))

1. 1. Substitute the values into the formula

      £2,851,200 - (£820,000 + £2,600)    =      £2,028,600       

      (1 mark for partially correct substitution into formula; 2 marks for the correct answer)

 

Head to Toe Wellbeing’s revenue in 2022 was £124,653. Its gross profit was £105,731.

 

Calculate Head to Toe Wellbeing Ltd’s Gross Profit Margin in 2022. (2)

 
Step 1: Substitute the values into the formula

                  (1 mark)

  

Step 2: Multiply the outcome by 100 to find the percentage

   0.8482 x 100

    = 84.82%                   (1 mark)

84.82% of Head to Toe Wellbeing’s revenue was converted into gross profit during 2022

Head to Toe Wellbeing’s revenue in 2022 was £124,653. Its net profit for the year was £57,596.

 

Calculate Head to Toe Wellbeing Ltd’s Net Profit Margin in 2022. (2)

Step 1: Substitute the values into the formula

        (1 mark)

 

Step 2 - Multiply the outcome by 100 to find the percentage

0.4621 x 100

= 46.21%             (1 mark)

46.21% of Head to Toe Wellbeing’s revenue was converted into profit for the year