Introduction To Profit And Loss


I. Definitions
Profit and loss calculations are useful in the scenario where one or more items are bought and sold after some possible processing or handling. In this case the merchant (one who buys and sells) can make some profit or loss for any sell that he or she  makes.

The basic terminologies used in Profit & Loss calculations are as follows:

$\underline{Cost\ Price}$
The price at which the merchant buys one or more items to sell subsequently. On many occasions the cost price is indicated by the acronym $C.P.$

$\underline{Processing\ Cost}$
Any expenditure that the merchant incurs after buying the item and before selling it, on that item. For example, transportation cost, packaging cost, storage cost, delivery cost, salary of employees, etc.
So, we can say:
$Actual\ Cost\ Price = Cost\ Price + Processing\ Cost$

The processing cost is also, on some occasions, known as $Overhead$
When calculating processing cost, the overhead should be calculated on a per item basis.

In our problems, if the processing cost is not mentioned explicitly, we should assume that there is no processing cost involved, in other words processing cost is zero.

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$\underline{Marked\ Price}$
The price at which the merchant intends to sell the products or marks the product with this price. On many occasions the product is sold at a discount on the Marked Price.
This prices is known as the MRP, MSRP and varies from country to country.

$\underline{Discount}$
The discount which the merchant offers for special occasions or is bargained by the customer. The discount is always calculated on the Marked Price.

$\underline{Selling\ Price}$
The actual price which the merchant receives from the customer for selling this good.

$\underline{Profit}$
When the merchant is actually able to sell the good at a higher price than the Actual Cost Price, he or she makes some money by selling the product.
The money which the merchant makes, is called the profit.
$Profit = Selling\ Price - Actual\ Cost\ Price$

$\underline{Loss}$
When a merchant is not able to sell the item at a price higher than the actual cost price, he sometimes prefers to sell it at a lower price, instead of loosing all of the cost price. In this case the merchant looses some money, this is called the Loss.
$Loss = Actual\ Cost\ Price - Selling Price$

Both profit and loss are always calculated on the Actual Cost Price.

Note that mathematically, loss is treated as negative profit.