In previous articles, we differentiated between production costs (classified in accounting as Cost of Goods Sold and often abbreviated COGS), considered profit as just another expense, and learned how to calculate gross margin and gross profit based on actual historical numbers. In this article, we’ll put it all together and we’ll see how you can apply simple formulas to give you “what if” scenarios for projections.
Let’s look again at a simplified profit and loss and the formulas for gross margin and markup. We’ll keep our gross profit fixed. You will always know what that is, because you’ve isolated your overhead and named your profit. Gross profit is the sum of these. But this time, we’re going to learn the formulas required in order to perform a series...
to continue reading