# How to Calculate Gross Profit

Gross Profit  It is a required income statement entry that indicates total revenue minus cost of goods sold. It is the company’s profit before operating expenses, interest payment and taxes. It is also known as GROSS MARGIN. The gross profit on a product is computed as: Net Sales – Cost of Goods Sold (COGS) This concept is well understood if you are able to clearly distinguish between variable and fixed costs. VARIABLE COSTS: Materials used Direct labor Packaging Freight Plant supervisor salaries Utilities for a plant or a warehouse Depreciation expense on production equipment Machinery  FIXED COSTS: Fixed costs generally are more static in nature. They include: Office expenses such as supplies, utilities, a telephone for the office, etc. Salaries and wages of office staff, salespeople, officers and owners Payroll taxes and employee benefits Advertising, promotional and other sales expenses Insurance Auto expenses for salespeople Professional fees Rent  Variable expenses are logged as cost of goods sold. Fixed expenses are counted as operating expenses (sometimes called selling and general administrative expenses). While gross profit is a monetary entity, the margin is expressed as a percentage. It’s equally significant to track since it allows you to keep an eye on profitability trends. Gross Profit Ratio = Gross Profit / Net Sales The gross profit margin is computed as follows: When the ratio is expressed in percentage form, it is known as gross profit margin or percentage. Gross Profit / Net Sales *100 = Gross Profit Margin It is equal to the net sales minus cost of goods sold and net sales are equal to total gross sales less return inwards and discount allowed. Benefits of calculating gross profit: This ratio determines how efficiently the management utilizes labor and raw materials A company uses its gross income to fund activities such as research and development, marketing etc., which are vital for generating future sales. A prolonged decline in this margin is a cleat-cut indication of sales drop-down and ultimately earnings. Trends in this margin reflect basic pricing decisions and material costs of a company. This profit margin is an accounting measure designed to estimate the financial health of a business or industry. It may be noted that generating a profit margin alone cannot vouch for the financial health of a firm; rather the business must have sufficient cash flow in order to pay its bills and compensate employees. An entrepreneur might compare the return that would be available from a bank or another low-risk investment opportunity to that of his EXISTING profit-margin to gauge whether his startup is doing well. → Profitability...

# Locational Attributes for a Plant Layout

Locational Attributes for a Plant Layout The location of an industrial plant plays a vital role in determining its success. Management should weigh the pros and cons of the location in terms of cost and revenue as each location might influence these variables in different proportions. Let us try to understand the need for a new facility location. Entrepreneurs interested in starting a new business venture or a small-scale enterprise has to look out for appropriate location for plant installation. Manufacturers who plan to expand their product range needs additional plant capacity Multinational corporations trying to establish their markets through subsidiaries Obsolete plants have to be shut down and new location has to be identified. The location attributes described below are fundamental in the decision to locate an industry. Although for particular firms some are more important than others, a significant shortfall in an area’s ability to provide even one of these may greatly reduce the attractiveness of that site. Labor The management will be interested in such locations where there is adequate supply of labor. Some operations need skilled labor and some unskilled. The cost of labor is an important factor to be considered as it influences labor productivity. However, low labor cost is not necessarily an advantage, if the workers are poorly educated and trained. The management has to be mentally prepared to pay for skilled labor who have the training and experience needed for the planned operation. Energy resources Electricity and water are major energy resources needed for production activities. For example, a textile mill needs to have round the clock power supply, for continuous production and a dyeing plant is in need of copious water supply. These industries will be on the look out for a location that has abundant energy resources available at low cost. Transportation The industry has to be located near the market so that the produce can quickly reach the market making the transportation costs minimum. Domestic trade heavily relies upon road transport as there are numerous service providers and there is well-developed infrastructure connecting even the remotest of locations. International trade takes place through either airways or waterways. In places like Kerala, inland waterways help in transporting merchandise within the domains of the territory. Raw materials availability Many businesses depend on materials of various types such as unprocessed raw materials for use in manufacturing and finished goods for inventory, in wholesale and retail establishments. The availability and cost, including transportation costs of these materials are critical location factors. Other Factors Other factors that influence location decisions are government regulations, climate and environmental quality of an area, soil texture, and attitudes of state and local governments’ etc. The economic viability of a project is undoubtedly enhanced by appropriate location. The location should also conform to environmental protection laws to maintain the ecobalance of that particular habitat. Organizations are expected to dispose of with the effluents in a systematic manner and this has to be kept in mind while choosing a location. The GEMBA Walk: A gemba (and sometimes genba) walk is the term used to describe personal observation of work – where the work is happening. The original Japanese term comes from gembutsu, which means “real thing.” It also sometimes refers to the “real...