Answer Sheet 12

THE PROFIT AND LOSS ACCOUNT

Use task sheets 5 and 11 to help with this work.

The figures you need to enter refer to the sales and costs of the first issue of your magazine.
Use the lines to explain what the terms mean, and how they are calculated.

1. Sales Revenue for issue 1 £ 545,200

Sales revenue is calculated by: Price x Sales (188,000 copies sold at a price of £2.90)

2. Cost of Sales

Variable production costs £ 50,000 Ink, paper, staples, packaging

Promotion cost the cost of your free gift
£0
Distribution cost £ 18,800 the cost of using newsagents or mail order

Total cost of sales £ 68,800

Explain the meaning of cost of sales: ‘Cost of sales’ refers to the variable costs of production. These
are the costs which are directly linked to the output of the product.
3. Gross Profit: calculated by: Sales revenue minus cost of sales

Gross profit for issue 1 £ 476,400

4. Fixed Costs

Factory Fixed Costs £ 100,000

Advertising £ 120,000

Total Fixed costs £ 220,000

5. Explain the meaning of fixed cost: These are costs such as the rent of the factory which do not
change with output. Fixed costs are sometimes called overheads or fixed overheads

6. Net Profit: calculated by: Gross profit – fixed costs

Net profit for issue 1 £ 256,400

7. Appropriation Account
The appropriation account shows what happens to a firm’s: profits
This can be 'appropriated' (used) in 3 main ways:
a) Corporation Tax
Paid to the Government on the firm’s profits. Assume it is at a rate of 25% = £ 64,100
b) Dividends
Paid to shareholders. Assumed that 25% of profit is paid in dividends = £ 64,100 c)
c) Retained Profit
Profit kept and reinvested by the firm. What is left after tax and dividends = £ 128,200
8. Make a list of people or organisations who might be interested in Pepper’s Profit and Loss Account
Shareholders, banks who have lent money to Pepper, people thinking about investing in Pepper,
competitors wishing to buy or merge with Pepper, employees.

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