Profit Estimation

 Profit estimation means to calculate future profit on expected sale. This is also called profit forecasting. This profit estimation is done on the trends of past accounting data. In profit estimation, we  take risk as one of important factor. So, we also adjust all risk of unexpected loss for calculating correct profit estimation. For estimated profit, we have to estimate cost of goods sold, sales and gross profit margin and fixed cost and variable cost. All these will become the factors of profit estimation.

Profit Estimation Factors Chart
Now, you can learn profit estimation by reading profit estimation problem which recently was written by an Accountant Mr. Mohamed who is living in Somalia and its solution which has been given by me.

Problem of Profit Estimation

A company supplied tool kits for Handyman search. Toolkit comprises an standard plastic box which contains available number of tools depending on the tape of tool, the market and wholesaler's requirement.
the firm has derived a profit function which shows that their profit depends both on the number of tool kits supplied and the number of tool in each kit.

the profit function is:

P=8k-0.0001k(2)+0.05kT-77.5T(2)-10,000.where P=profit,K=No. of kits,T= No. tool in each kit,(2)= square. how to calculate estimated profit?.

Solution of Profit Estimation  Problem

Dear, your company has estimated profit by using following simple formula of revenue

Profit Function = total revenue from kit - variable cost of kit + total revenue from tool in kit - variable cost of tool in kit.  10000 in formula may be fixed cost.

Dear, I think there is some figure missing in the question. If you have data of expected sale units of kit and tool, we can calculate estimated profit by multiplying it with given data.

Related : Profit Maximization


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Accounting Education: Profit Estimation
Profit Estimation
Accounting Education
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