You will need
- Definition of variables and constant costs.
To calculate the profit prior to taxation, is necessary from the total amount of total revenue subtract the amount spent on the production.
However, production costs can be explicit and implicit. When we subtract from total revenue explicit costs, which are external, the result is an accounting profit. Accounting profit of the organization describes the result of the organization's activities for a certain period of time. But explicit and implicit costs may not always be permanent. To obtain the value of economic profits, accounting profit, subtract the internal costs and the cost of business resources.
The value of the economic profit shows the perspective of the organization's activities and future results, so calculated profit before tax. The cost of the entrepreneurial resources show the amount of the profit share, which depends on the capabilities of the Manager production.
The production process of education and income passes 2 stages. In the first phase, the money invested in the production, products are made. That is involved 2 factors – capital and labor. This creates new value and wealth created a profit. To calculate the new value, calculate the difference between the cost of goods manufactured and the amount of purchased raw materials. The cost of the finished product includes cost of production and the new value.
From gross income, the organization is covered by the rent, interest on loans, etc. the result is only a net profit.
In the second stage the profit will be realized. The profit of the manufacturer is equal to the difference between the price of products and cost. Cost of sales consists of total production costs, and the profit obtained from the difference between cost and price.
The cost may also vary depending on the cost of production. To calculate profit in the short term, industries need to determine the variable and fixed costs. When calculating profit in the long term, be aware that any costs are variable.
A manufacturer must not sell their products at a price below its cost.
Do not forget that the cost of production includes the payment of wages to employees.