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How to Calculate Gross Profit
Gross profit (GP) is your net sales (gross sales less VAT/sales tax) minus your Cost Of Goods Sold (COGS, also called Cost Of Sale).
Your COGS is the direct cost of producing the product or service.
Your sales are normally taken from your point of sale system or your invoicing system and are always exclusive of VAT/sales tax.
Here is how to calculate your COGS:
Opening inventory count (see below for tips on making this smooth and stress-free)
+ Purchases – Credits (if applicable) + Transfers (if applicable) + Wastage (optional*) – Closing inventory count = COGS
*Adding the wastage to the GP calculation is optional. On the wastage page, on the DigiTally website, you can tick the box to include wastage in your GP calculation. From experience we would recommend that wastage needs to be recorded.
Imagine you are a restaurant owner and you want to know your gross profit for the month of July (your inventory period).
Here are our top tips to have a smooth, successful and stress-free inventory count!
1. Why do you need an inventory count/stocktake?
For the calculating gross profit margins, updating your POS (point of sale) system with stock levels, identifying shrinkage, year end accounting purposes, are a few of the main reasons.
Know why you require it and have this at the core of your plan for counting your inventory.
2. Whats to be counted, by whom and when?
Your inventory can be in several different areas and not all neatly stored together in one location. Have all locations listed and determine if they all need to be counted at the same time. For example, if there is a storage area for seasonal stock, can this be pre-counted? The more areas that can be pre-counted in advance will make a significant reduction in time on the day of your inventory audit.
Do you have your staff rota completed for the inventory audit? Have all key personnel available on the day so as they can be responsible for the counting in their own areas.
3. Straighten, Sort, Shine
The more preparation that goes into the preparation of your inventory management, the easier the counting process will be. Straighten the items on the shelf, sort like-with-like products and clean the areas to be counted. Remove excessive cardboard boxes, have all full cases on the bottom and the open one on the top, pre-count large cases of smaller items and have the quantity written on the outside of the box.
4. Tools for the inventory count
Know what equipment you need;
Hand held scanners – For bar-coded inventory. Do you own them? Have to rent them? Are they all working? Do they have the latest version of software?
Equipment – Ladders, lifts, small steps for slightly out of reach areas, gloves for counting fridges or freezers, paper and a printer for printing count sheets. Access to the barcode printer
Trained Stocktakers – Untrained stocktakers may not fully understand the process.
Supervisors – To spot check certain areas to ensure maximum accuracy.