How is net profit calculated?

Net profit is calculated by taking the difference between sales and the cost of sales, which represents the actual revenue retained after accounting for the expenses directly associated with producing or purchasing the goods sold. This figure is then divided by the total department sales to understand the proportion of profit in relation to total sales.

This calculation is essential for evaluating the efficiency of the department in generating profit from its sales. By subtracting the cost of sales from total sales, you determine how much money remains after covering those direct costs. The resulting net profit reflects the department's overall contribution to profitability, and dividing it against total department sales provides insight into the profit margin.

This approach is fundamental for retail operations, including grocery and produce departments, as it helps managers make informed decisions about pricing strategies, inventory management, and overall financial health.