Calculating Average Profit | How to Determine Profit Earned per Unit of Output or Time Period

Average Profit

Average profit is the net profit earned per unit of output or over a given period of time

Average profit is the net profit earned per unit of output or over a given period of time. It is calculated by dividing the total profit by the number of units produced or the duration of the time period.

To calculate the average profit, you need to subtract the total cost from the total revenue. Total revenue is the total amount of money received from selling the products or services, while total cost includes all expenses incurred in producing those products or services.

The formula for average profit is:

Average Profit = (Total Revenue – Total Cost) / Number of Units Produced or Time Period

For example, let’s say a bakery generates a total revenue of $10,000 in a month and incurs total costs of $8,000. During that month, the bakery produced 1,000 units of baked goods. Using the average profit formula:

Average Profit = ($10,000 – $8,000) / 1,000
Average Profit = $2,000 / 1,000
Average Profit = $2 per unit

In this example, the average profit per unit of baked goods produced by the bakery is $2. It represents the profit earned, on average, for each unit sold.

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