Question

A handicraft products trader is selling leather cases for $40 the unit. To run his business, he needs to pay $10000 for rent, $5000 salaries, and another $5000 for marketing campaigns. The handicraft trader has the choice to import his products from different countries, and it will cost him $20 per unit if the product comes from China, $25 per unit if the product comes from India, and $15 per unit if the product comes from Malaysia.

1. compute the trader’s profit if he imports only from China and sells 500 then 2000 units. Explain the obtained results.

Answer 1

The handicraft trader incurs a loss of $10,000 when selling 500 leather cases imported from China but makes a profit of $20,000 when selling 2000 units, illustrating the impact of sales volume on profitability.

Step-by-step explanation:

The student has presented a scenario involving a handicraft products trader selling leather cases and considering the cost of importing goods from various countries. To calculate the trader’s profit when importing from China, we need to consider the fixed costs and the variable cost per unit alongside the revenue from sales.

Step-by-Step Profit Calculation for 500 Units:

Calculate total fixed costs: $10000 (rent) + $5000 (salaries) + $5000 (marketing) = $20000.

Determine the cost per unit when importing from China: $20.

Calculate total cost for 500 units: 500 * $20 = $10000.

Calculate total cost including fixed costs: $10000 (units) + $20000 (fixed costs) = $30000.

Calculate revenue for 500 units at $40 each: 500 * $40 = $20000.

Subtract total costs from revenue to find profit: $20000 (revenue) - $30000 (costs) = -$10000 (loss).

Profit Calculation for 2000 Units:

Calculate total cost for 2000 units: 2000 * $20 = $40000.

Calculate total cost including fixed costs: $40000 (units) + $20000 (fixed costs) = $60000.

Calculate revenue for 2000 units at $40 each: 2000 * $40 = $80000.

Subtract total costs from revenue to find profit: $80000 (revenue) - $60000 (costs) = $20000 (profit).

The obtained results show a loss when selling only 500 units due to high fixed costs, but a profit when selling 2000 units, demonstrating how increased sales volume can compensate for the initial fixed costs.