Question

Question 1: Problem solving (14 Marks)

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.

Questions:

1. If the trader must choose to import his products from one country, then which country will it be? (3 Marks)
2. compute the trader’s profit if he sells 40 units imported from China and 50 units imported from India. (2 Marks)

Answer 1

A handicraft products trader

1. The country to choose is Malaysia with the lowest variable cost.

2. Trader's profit under two scenarios:

China India Total

Sales revenue $1,600 $2,000 $3,600

Variable cost 800 1,250 2,050

Contribution $800 $750 $1,550

Fixed costs 20,000

Net loss $18,450

Step-by-step explanation:

Selling price of leather cases = $40 per unit

Fixed costs:

Rent = $10,000

Salaries = $5,000

Advertising = $5,000

Total fixed costs = $20,000

Variable costs:

China = $20

India = $25

Malaysia = $15

Variable costs:

China = $800 ($20 * 40 units)

India = $1,250 ($25 * 50 units)