Question

Calculate the profit or loss in each case below:

(a) Fixed costs: £9000 rent, £4000 insurance
Variable costs: £4500 wages, £500 delivery costs and £4000 in raw materials
Sales revenue: 1,500 units expected to sell at £25 each

(b) Fixed costs are £26,000 per year, and variable costs include wages at £10 per
unit, raw materials at £12 per unit and delivery/packaging at £3 per unit. It is expected that a business will make and sell 750 units during the year, with
a selling price of £26.

Answer 1

(a) Th profit is £13,500.

(b) The loss is £25,250.

Step-by-step explanation:

(a) Calculate the profit or loss

This can be calculated as follows:

Total fixed cost = Rent + insurance = £9000 + £4000 = £15,000

Total variable cost = wages + delivery costs + raw materials = £4500 + £500 + £4000 = £9,000

Total cost = Total fixed cost + Total variable cost = £15,000 + £9,000 = £24,000

Sales revenue = Units expected to sell * Price per unit = 1,500 * £25 = £37,500

Profit or loss = Sales revenue - Total cost = £37,500 - £24,000 = £13,500 profit

(b) Calculate the profit or loss

This can be calculated as follows:

Fixed cost = £26,000

Total variable cost = wages + raw materials + delivery costs = (£10 * 750) + (£12 * 750) + (£3 * 750) = £18,750

Total cost = Total fixed cost + Total variable cost = £26,000 + £18,750 = £44,750

Sales revenue = Units expected to sell * Selling price per unit = 750 * £26 = £19,500

Profit or loss = Sales revenue - Total cost = £19,500 - £44,750 = £25,250 loss