A furniture maker is deciding whether to expand production. It expects to sell 500 extra chairs at $80 each. The extra wood, wages and delivery costs will b...
Question 1 Report
A furniture maker is deciding whether to expand production. It expects to sell 500 extra chairs at $80 each. The extra wood, wages and delivery costs will be $31 000.
Calculate the expected profit from the extra output. [2]
Explain one reason why the actual profit may be lower than expected. [2]
Answer Details
(a) Profit is total revenue minus total cost.
\[\text{Total revenue}=500\times\$80=\$40\,000\]
\[\text{Profit}=\$40\,000-\$31\,000=\$9000\]
The expected profit is \$9000. [2]
(b) Actual profit may be lower if fewer chairs are sold than forecast. This reduces total revenue; if costs do not fall by the same amount, the difference between revenue and cost, profit, becomes smaller. [2]
In an examination, give both the change and its consequence: fewer sales \(\rightarrow\) lower revenue \(\rightarrow\) lower profit.
Download The App On Google Playstore
Everything you need to excel in your exams
