Similar Products- Profit or Loss

[vijaykumar.kondepudi]

Hi,

I came across the below formula regarding Profit and Loss calculations:

Formula

When a person sells two similar items, one at a gain of say x%, and the other at a loss of x%, then the seller always incurs a loss given by:

Loss % =[Common Loss and Gain %/10]^2 = x^2/100 .

I don't understand, why would there be a loss. I thought it was

no loss - no gain scenario

For example: If the CP of a product is $100, and I sell 2 such products, one at a profit of 25% and other at a loss of 25%:

So, one product is sold for $125 and the second one for $75
and the Total cost price is $100*2 = $200

Net profit/loss % = (Total Revenue - Total Cost/Total Cost) * 100
= (125+75 -200) * 100/200
= 0 %

I see that there is "No Loss or No Profit" in this case. But the formula says that there is a LOSS always.

Could someone explain with some examples.

Thank You !!

[divineacclivity]

I'm assuming by "two similar items" means "similar selling price of the items", so, for ease of calculation, let's consider the selling price of the two items is 100 (one after a loss of 10% and another after a gain of 10% ofcourse)

*********** 1 **********
Let's first calculate gain from item-1 selling at 100 after 10% of profit:
Cost price of item-1 = Selling price - gain
i.e. CP1 = SP - gain
= 100 - CP1 * 10/100
=> CP1 + CP1/10 = 100
=> 11 * CP1/10 = 100
=> CP1 = 1000/11

Now, gain from item 1 = CP1 * gain percent/100 = 100/11

********** 2 ***********
Now, let's first calculate loss from item-2 selling at 100 after 10% of loss:
Cost price of item-2 = Selling price - gain
i.e. CP2 = SP + loss
= 100 + CP2 * 10/100
=> CP2 - CP2/10 = 100
=> 9 * CP2/10 = 100
=> CP2 = 1000/9

Now, loss from item 2 = CP2 * loss percent/100 = 100/9

******** from 1 & 2 above *************
net loss from the two items = (loss from item-2) - (gain from item-1) = 100/9 - 100/11 = 200/99

total CP = CP1 + CP2 = 1000/11 + 1000/9 = 2000/99

net loss % = net loss/total cost * 100 = (200/99 * 100) / (2000/99) = 1
by the formula you gave, net loss % is also equal to x*x/100 = 100/100 = 1

I hope this helps

[vijaykumar.kondepudi]

Thanks for your explanation.

It's actually tricky, because, how do we interpret the statement:

"When a person sells two similar items ..."

1. Cost Price of each item is same ??
2. Selling Price of each item is same ??

If we assume that, "two similar items" means "similar selling price of the items", we will have a loss.

But, if the Cost Price is the same for 2 items and one is sold at a profit of x % and the other is sold for a loss of y%, then I think it's a "No Loss - No Gain" scenario.

There is a small error, towards the end of the calculation:

total CP = CP1 + CP2 = 1000/11 + 1000/9 = 2000/99

CP = CP1 + CP2 = 1000/11 + 1000/9 = 20000/99

And the rest follows.

[divineacclivity]

Absolutely yes for if the cost price is the same then there's no net profit or loss atall. the two things neutralize
yeah 20000 instead of 2000; that's a typo. thanks :)

[RonPurewal]

Thanks for your explanation.

It's actually tricky, because, how do we interpret the statement...

... yet another one of the countless problems with using questionable third-party sources.

stick to the official stuff!