How can I calculate selling price from cost and GP?

[Tilburyboozer]

We have a pub, and we really need to keep a close watch on profit margins. I
have a formula for calculating the GP from nett cost and selling prices [
which is 1-(cost price/sales price) ] but my maths lessons are nearly 50
years back, and I can't work out how to calculate the price we need to charge
in order to make the right margins.

A younger memory will solve this in seconds, I know, so please lend a hand.

 

[Bernard Liengme]

Rearranging GP = 1-(cost price/selling price) gives
selling price = cost price /(1- GP)
The word 'maths' suggests UK - I got my 'O' level math in 1954!
So please check this with some data
I wonder if I ever visited your Tilbury pub
best wishes from Canada

 

[Gordon]

We have a pub, and we really need to keep a close watch on profit margins.
I
have a formula for calculating the GP from nett cost and selling prices [
which is 1-(cost price/sales price) ] but my maths lessons are nearly 50
years back, and I can't work out how to calculate the price we need to
charge
in order to make the right margins.

A younger memory will solve this in seconds, I know, so please lend a
hand.

Not sure where you have got this formula from as a recently retired
Management Accountant it makes no sense at all!

The formula you need is a re-arrangement of this:

GP=SP-COS.
In other words what you want to calculate SP is SP = GP + COS

where GP=Gross Profit, SP= Selling Price and COS= Cost Of Sales.

COS is usually the direct cost to you of your goods for sale, but may
contain other items such as direct labour (bar staff etc etc)

HTH

 

[Gordon]

Rearranging GP = 1-(cost price/selling price) gives
selling price = cost price /(1- GP)

I don't know where the OP got this from. As a recently retired Management
Accountant I have NEVER seen it expressed that way and in fact have
considerable doubts that it would give the correct answer!

the proper way is this:

GP = SP - COS (Cost of Sales)
No division there anywhere!

 

[Roger Govier]

Hi

I believe what the OP is referring to Gross Price not Gross Profit. He wants
to know how to calculate the Sale price he needs to achieve a given level of
Gross Profit percentage.
The formula that Bernard gave him is correct, but GP in the formula must be
expressed as a percentage figure.

With the level of Gross Profit expressed as a % in cell A1, e.g 45%
Enter the title for the Product in A2 downward e.g. Bitter, Lager, Gin,
Whisky etc
Cost price for each Product in B2 downward,
then enter in C2
=B2/(1-$A$1)
and copy down as far as required.

Column C will give the Gross Price he needs to sell each product for, in
order to achieve the Percentage as expressed in cell A1

 

[Bernard Liengme]

His formula amounts to (Sell price - Cost price)/Sell price
So it is the percentage of the Selling price that is profit, I would think
But then I'm a chemist
best wishes

 

[Gordon]

His formula amounts to (Sell price - Cost price)/Sell price
So it is the percentage of the Selling price that is profit, I would think
But then I'm a chemist
best wishes

The OP didn't mention GP PERCENT.........

 

[Roger Govier]

Well, only the OP can answer what he really wanted.
But, from all the pub landlords I know, they all %GP being the % margin on
Sales.
What the OP asked for, was how can he calculate his selling price, from his
cost and GP.
In those circumstances, I believe the interpretation I made is correct - but
who knows!!!

 

[Gordon]

Well, only the OP can answer what he really wanted.
But, from all the pub landlords I know, they all %GP being the % margin on
Sales.
What the OP asked for, was how can he calculate his selling price, from
his cost and GP.
In those circumstances, I believe the interpretation I made is correct -
but who knows!!!

The point being, that if the OP uses SP = GP + CP, then he KNOWS how the
three inter-relate in an accounting scenario, which is what he's in. The
1-(GP/CP), although it may produce the correct answer is NOT an accounting
function, it's an arithmetical function....

 

[Roger Govier]

I am going to give up on this futile argument (as Accountants are always
right, aren't they<bg>), but since when has
SP = GP + CP
not been an arithmetical function?
All accounting is based on arithmetical functions.

 

[Bernard Liengme]

No and it you asked him for "a pint" he would serve you beer without you
mentioning it!
Look at his equation - it obviously a ratio calculation.