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In Kaplan, It is stated that on unit basis gross profit represents difference between unit sales and the direct cost per unit.
Is it correct?
Gross Profit = Sales Price – Direct Costs – Production Overhead.
Or this is correct?In addition to that, it is written that “gross profit margin works out an average basis across all sales of the year.”
Please explain this too. Thank you.For Financial Accounting, the gross profit is the difference between the sales revenue and the cost of production (assuming obviously that they are producing their own goods and not simply buying them externally). The cost of production includes all costs in the factory (including the production overheads).
The distinction between direct costs and indirect costs (i.e. overheads) is of no relevant for Financial Accounting (it only matters in Management Accounting which is Paper MA).
During the year the sales price and the costs are likely to change because prices and costs are not likely to stay fixed. So the gross profit margin for the year will be an average.
All of this (as far as it affects Paper FA) is dealt with in our free lectures. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well. If you are watching the lectures then you do not really need a Study Text.
The essential book (however you choose to study) is the Revision Kit / Exam Kit, because it is full of exam standard questions to practice when you have finished studying, and practice is vital for passing the exam.
Yes tutor. I read your notes and they are amazing. I will now try to see your online lectures too. Thank you so much for providing such free source to students.
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