Profit, Loss, Discount, Mark-up and Break-even (Basics) Questions

Question 1

Write the formula for profit.

Accepted Answer

Profit = Selling Price (SP) − Cost Price (CP).

Question 2

Write the formula for discount amount.

Accepted Answer

Discount amount = (Discount%/100) × Marked Price (MP).

Question 3

What is contribution?

Accepted Answer

Contribution is SP − Variable Cost; it is the amount available to cover fixed cost and profit.

Question 4

State the formula for break-even point in units.

Accepted Answer

Break-even point (units) = Fixed Cost / Contribution per unit.

Question 5

Define cost price (CP).

Accepted Answer

Cost price (CP) is the purchase or production cost of an article incurred by the seller.

Question 6

What is marked price (MP)?

Accepted Answer

Marked price (MP) is the list/tag price of an article before any discount is allowed.

Question 7

Differentiate between trade discount and cash discount.

Accepted Answer

**Trade discount:**
- Given on the marked/list price to trade buyers (wholesaler/retailer).
- Purpose: encourage bulk purchase and fix different price levels in the channel.
- Shown on invoice; usually not entered separately in books as discount expense.

**Cash discount:**
- Given for early payment or prompt settlement.
- Purpose: encourage quick collection and reduce credit risk.
- Treated as an allowance/expense in accounts (discount allowed/received).

Question 8

Explain successive discounts and find the net discount for 30% and 10%.

Accepted Answer

**Successive discounts** mean two or more discounts applied one after another on the reduced price (not added directly).

For two discounts d1% and d2%:
Net discount % = d1 + d2 − (d1×d2)/100

Here d1 = 30 and d2 = 10:
Net discount % = 30 + 10 − (30×10)/100
= 40 − 3
= **37%**.

So, 30% and 10% successive discounts are equivalent to a single discount of **37%**.

Question 9

If CP is ₹1000 and profit is 20% on CP, find SP and profit amount.

Accepted Answer

Profit = 20% of CP = (20/100) × 1000 = ₹200.

SP = CP + Profit = 1000 + 200 = **₹1200**.

So, profit amount is **₹200** and selling price is **₹1200**.

Question 10

Explain mark-up and margin with one example.

Accepted Answer

**Mark-up** is profit expressed as a percentage of cost price:
Mark-up % = (Profit/CP) × 100.

**Margin** (gross margin) is profit expressed as a percentage of selling price:
Margin % = (Profit/SP) × 100.

**Example:** If CP = 100 and SP = 125, then Profit = 25.
- Mark-up % = 25/100 × 100 = **25%**
- Margin % = 25/125 × 100 = **20%**

So mark-up and margin use different bases (CP vs SP).

Question 11

A product has SP ₹200, VC ₹120 and FC ₹40,000. Find BEP in units.

Accepted Answer

Contribution per unit = SP − VC = 200 − 120 = ₹80.

BEP (units) = FC / contribution per unit
= 40,000 / 80
= **500 units**.

So the break-even point is **500 units**.

Question 12

Profit is 20% on selling price. Find profit percent on cost price.

Accepted Answer

Let selling price (SP) = 100.
Profit = 20% of SP = 20.
So cost price (CP) = SP − Profit = 100 − 20 = 80.

Profit % on CP = (Profit/CP) × 100
= (20/80) × 100
= **25%**.

Therefore, 20% profit on selling price is equivalent to **25% profit on cost price**.

Question 13

Define profit and loss. Explain profit % and loss % with suitable examples.

Accepted Answer

### Profit and loss
- **Profit (gain)** occurs when selling price is more than cost price.
  Profit = SP − CP
- **Loss** occurs when selling price is less than cost price.
  Loss = CP − SP

### Profit percentage
Profit % (generally on CP) = (Profit/CP) × 100

**Example:** CP = ₹1000, SP = ₹1200
Profit = 1200 − 1000 = ₹200
Profit % = (200/1000) × 100 = **20%**

### Loss percentage
Loss % (generally on CP) = (Loss/CP) × 100

**Example:** CP = ₹1000, SP = ₹900
Loss = 1000 − 900 = ₹100
Loss % = (100/1000) × 100 = **10%**

**Conclusion:** Profit/loss indicates gain or sacrifice in a transaction and percentage form helps compare performance across products or time.

Question 14

Explain marked price, discount and selling price. Solve: MP ₹5000, trade discount 20% and cash discount 2% on invoice price. Find amount payable.

Accepted Answer

### Meaning
- **Marked Price (MP):** list/tag price before discount.
- **Discount:** reduction on MP (trade discount) or on invoice for early payment (cash discount).
- **Selling/Invoice price:** price after trade discount.

### Problem
MP = ₹5000
Trade discount = 20%
Invoice price = 5000 × (1 − 20/100) = 5000 × 0.80 = ₹4000

Cash discount = 2% on invoice price
Cash discount = 4000 × (2/100) = ₹80

Amount payable = Invoice price − Cash discount
= 4000 − 80
= **₹3920**

**Answer:** Amount payable is **₹3920**.

Question 15

Explain break-even point and contribution. Also show how to compute profit at a given sales level with an example.

Accepted Answer

### Contribution
Contribution is the excess of sales over variable cost.
- Contribution per unit = SP per unit − VC per unit
Contribution first covers fixed cost; remaining becomes profit.

### Break-even point (BEP)
BEP is the level of sales where **profit is zero** (no profit, no loss).
At BEP: Total contribution = Fixed cost.

**BEP (units) formula:**
BEP (units) = Fixed Cost / Contribution per unit

### Profit at a given sales level
Profit = (Units sold × Contribution per unit) − Fixed Cost

### Example
Suppose SP per unit = ₹200, VC per unit = ₹120, FC = ₹40,000.
Contribution per unit = 200 − 120 = ₹80.

BEP units = 40,000/80 = **500 units**.

If actual sales = 650 units:
Total contribution = 650 × 80 = ₹52,000
Profit = 52,000 − 40,000 = **₹12,000**

**Conclusion:** Contribution is the key to CVP analysis; BEP tells minimum sales needed to avoid loss and profit can be computed using contribution minus fixed cost.

Profit, Loss, Discount, Mark-up and Break-even (Basics)

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