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Cost of sales


Please could someone help me to understand the calculation for Gross Profit

The query relates to a haulage company. Lets assume turnover is 100K, next we deduct cost of sales. The company has included the fuel costs as direct costs historically. I understand that to arrive at a cost of sales figure we take opening stock (in this case the value of fuel stocks) add purchases made within the year and deduct closing stock. So if the turnover is £100K, and the COS is 50K we end up with a gross profit of 50K. The bit I m struggling with is, if we are including fuel within the trading account then why is it included within the expenses listed in the P & L to arrive at net profit. It is as though we are accounting for the fuel cost twice? This to my mind understates the net profit. Please help... I am probably just being dumb.

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09th May 2012 10:41

Direct Costs & Overheads

I assume in this case that the £50k in direct costs is the fuel consumed by the trucks whereas the fuel listed as an expense is the fuel used by the sales & admin staff company cars and the MD's jag.

You may find much the same with the depreciation. 

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15th May 2012 22:05

Thanks for your response, it makes sense that fuel as a general expense would be shown within the p&l, such as sales and admin staff, however within the accounts I am looking at the cost of fuel presented within the trading account and the p&l is one and the same, this can't be right??

Not quite sure how depreciation applies..

Thank you for your response though.


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