Manufacturing P&L Example: A Monthly Profit and Loss Statement and How to Read It

A P&L is a profit and loss statement in which a period’s revenue moves down the lines until only the financial result is left. Below is a manufacturing P&L example for a furniture maker for one month, where revenue of €80,000 becomes gross profit of €36,000, operating profit of €10,500 before depreciation and €8,000 before tax. The company is fictional.

In this example monthly revenue grew 8% and operating profit grew 5%. An owner who looks at turnover would see a good month. With two periods side by side, you see that cost of goods sold grew faster than sales and the margin slipped from 45.9% to 45.0%.

Which lines make up a manufacturer’s profit and loss statement?

First comes revenue, then cost of goods sold, and between them gross profit. Below are three groups of expenses: “Production overheads”, “Administrative expenses” and “Selling expenses”. After them come operating profit, depreciation and interest.

The “Income and expenses (P&L)” report in Bimp is built on an accrual basis. A sale goes to revenue on the shipment date, and shop rent or salary goes to the expenses of the period they belong to, whatever the payment date. Only posted documents enter the report, so an unposted delivery note in the example below would not exist.

What does a furniture maker’s P&L look like for one month?

The shop makes cabinet furniture and sells it wholesale to dealers and at retail through its own online store. The table has two months so the statement reads as a trend. Line names are taken from the “Income and expenses (P&L)” report in Bimp, and the last line is calculated.

In the current month the cost price of €44,000 consists of materials of €32,000 and piecework pay of production workers of €12,000. Production overheads of €7,500 are shop rent of €4,500 and the pay of foremen and the storekeeper of €3,000. Administrative expenses of €8,000 include administration salaries of €6,000, office rent of €1,250 and bank and communications of €750. Selling expenses of €10,000 are marketing of €4,250, sales manager pay of €3,750 and delivery to customers of €2,000.

How do you calculate gross profit, margin and operating profit?

Gross profit equals revenue minus cost of goods sold, which is 80,000 − 44,000 = €36,000. Dividing by revenue gives margin (the “Gross profit” report calls it profitability): 36,000 / 80,000 = 45.0%. Dividing by cost price gives markup: 36,000 / 44,000 = 81.8%. Both percentages describe the same money from different sides, and that causes arguments in meetings about “80% markup” and “45% margin” when the result is one and the same.

Operating expenses come in three groups, 7,500 + 8,000 + 10,000 = €25,500. Subtract them from gross profit and you get 36,000 − 25,500 = €10,500, which is 13.1% of revenue. This is the line “Earnings before interest, taxes and depreciation”.

Next comes depreciation, 10,500 − 1,500 = €9,000, or 11.3% of revenue. Loan interest of €1,000 leaves 9,000 − 1,000 = €8,000, which is 10.0%. Income tax is not calculated in the example: the report gives a management picture, and the tax return follows other rules.

The previous month works the same way, 34,000 − 24,000 = €10,000 of operating profit before depreciation, which is 13.5% of €74,000 revenue. The current 13.1% is 0.4 percentage points lower, although in euros profit grew by €500.

What should you look at first in a P&L?

The first line to check is gross profit as a percentage. In the example it fell from 45.9% to 45.0%. Revenue grew by €6,000 (+8.1%), cost price by €4,000 (+10.0%), so each additional euro of sales brought less than the one before. The cause is sought in the “Cost of produced goods” report and in material purchase prices, but the fact itself is already visible in the P&L.

The second look goes to the share of expense groups in revenue. Selling expenses rose from €8,750 to €10,000, and this €1,250 explains most of the €1,500 growth in operating expenses. If the report showed only the total of €25,500, the difference would be lost.

The third look is the split by line of business. In Bimp the P&L is filtered by line of business and project. Wholesale gave revenue of €57,500 at a cost price of €32,500, which is gross profit of €25,000 (43.5%). The online store brought €22,500 of revenue, €11,500 of cost price and €11,000 of gross profit (48.9%). The sum matches the totals, 25,000 + 11,000 = €36,000. If the €4,250 marketing budget works entirely for the store, the store keeps 11,000 − 4,250 = €6,750 after it, which is 30.0% of its revenue, and the conclusion about the most profitable channel depends on the level of the report you look at.

The fourth signal is a negative gross profit in a row. If goods were sold below cost price, the report shows it as a red minus. For a manufacturer this happens when the price list was not updated after materials got dearer.

Why does gross profit depend on how shop expenses are booked?

In the Bimp report, production overheads sit as a separate group under gross profit. If you allocate them to products with a “Cost allocation” document and so include them in cost price, the picture changes. Suppose all €7,500 of shop expenses moved into cost price. It becomes 44,000 + 7,500 = €51,500, and gross profit 80,000 − 51,500 = €28,500, or 35.6%. Operating expenses fall to €18,000, and operating profit stays the same, 28,500 − 18,000 = €10,500.

So the margins of two manufacturers or two periods are compared under the same rule for what goes into cost price. For more on choosing the allocation base, see the article on allocating overhead to cost price.

Which P&L template should you start from?

A P&L template for a manufacturer is the same table with formulas instead of numbers. For a monthly report eight lines are enough.

In Excel such a table is filled in by hand from three sources. In Bimp the report is built from documents, and filters, period and grouping are saved with the Save as new template button, so the monthly report opens in one click.

Why is P&L profit different from the money in the bank?

The profit of €8,000 in the example exists by documents. Dealers may have paid for the shipment in part, and part of the materials was bought into the warehouse and not yet written off to cost price. The “Cash flow” report will show another number, and such a gap between two reports is expected. The mechanics are covered in the knowledge base article on the Cash flow report.

What does Bimp do and what does it leave out?

Bimp is a Ukrainian cloud ERP for manufacturers, and the “Income and expenses (P&L)” report opens from the “Reports” menu. It collects sales revenue, cost price, gross profit, markup and expenses by group from posted documents. Period, lines of business and project are set with filters, and grouping by years, quarters or months splits the report into columns. Each line and filter is described in the article Income and Expenses (P&L), and gross profit by product, customer and manager is described in Gross profit. For a general overview of the finance features, see the Finance page.

The limits are these. The P&L in Bimp is management accounting and does not replace statutory accounting, financial and tax reporting. The report does not calculate income tax by tax rules. The quality of the lines depends on how income and expense items and their groups are set up, so build them in the directory first and judge profit afterwards.

In the example revenue grew by €6,000 and operating profit by €500. The €5,500 difference was taken by cost price (€4,000) and operating expenses (€1,500), and this is the shift an owner would see first when opening the report for two months side by side.

For a wider look at where to begin with management accounting, see the article on management accounting for manufacturers.

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