Profit model is the way to make business profitable in every cycle of business. As a manger of business, it is his duty to manage business more efficiently. If manager study the profit model, he can easily learn the effect of changing of production cost or sold less or more units on profit. With more efficient management of production department, manager can reduce production cost per unit. If company’s sales manager will study profit model, they can join to increase the sales quantity.

Sales prices may be affected from lots of outside factors but still manager takes the decision to produce new product or not in such situation because it will reduce the quantity of sale and overall profitability will decrease.

Profit model is mathematical formula for finding the value of profit. It can used by accountant for finding the effect of changing the prices, quantity sold, fixed cost and variable cost. Following is the formula

Profit (π ) = Pq – [ Fn + wq]

P = Sales price

q = Quantity sold

Fn = Fixed cost

W = Variable Cost

Above formula shows a simple definition of profit. Profit is difference of sales and cost. If you will understand this model, you will find that every time, when we will change the sales price or quantity or cost, profit value will be changed automatically. If we open the above model, we will go more deep in it.

Profit (π ) = Pq – [ Fn + g0c+vq-g1c]

Wq is variable cost of sale and we can divide it following

g0c ==Opening stock X cost per unit

vq = Variable cost per unit X quantity produced

g1c = closing stock X cost per unit .

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