Basic gross/net profit question

[groovyjon]

Am I right in thinking that once break-even point has passed, the gross profit on any additional sales is equivalent to our net profit?

So if the break-even point is reached at 100k sales, the overall GP is 50% and the overall NP margin is 10%, then an additional 100k sales will add 50k to the bottom line because all fixed costs have been covered in that first 100k turnover?

 

[David Griffiths]

But there will be activity related costs that aren't included in cost of sales. On your figures you have sales of £100k, cost of sales £50k so gross profit = £50k and overheads of £40k = net profit £10k

Not all of those overheads are fixed costs. Some will be activity related. I wouldn't expect you to double your sales without higher costs for things like telephone, bank charges, and possibly even wages.

 

[groovyjon]

No as far as I can I'm including all variable costs like bank charges, packaging, etc. within the cost of goods sold, not just the value of the stock.

Wages would only increase if there was a significant increase in turnover so I'm classing those as fixed in this scenario.

 

[David Griffiths]

I'm including all variable costs like bank charges, packaging, etc. within the cost of goods sold, not just the value of the stock.

Ah, I see. I answered on the basis that you were doing it properly. Silly me.