Business Studies – 4.4.1 Identify and classify costs | e-Consult

The business can use the cost data to calculate the profit margin for each necklace type. This involves calculating the total cost per necklace (materials + labour) and then subtracting that from the selling price.

Beaded Necklace:

Total Cost = £5 (materials) + £2 (labour) = £7

Profit = Selling Price - Total Cost = £15 - £7 = £8

Silver Necklace:

Total Cost = £10 (materials) + £4 (labour) = £14

Profit = Selling Price - Total Cost = £30 - £14 = £16

Based on this cost data, the silver necklace has a higher profit margin (£16 compared to £8 for the beaded necklace). Therefore, the business should focus on producing silver necklaces. This is because it generates more profit per unit sold. The limited time available for production should be allocated to the silver necklace production to maximize overall profitability. The business should also consider the market demand for each product. If demand for beaded necklaces is very high, it might be worthwhile to produce some, even with a lower profit margin, to meet customer needs and maintain sales. However, the primary focus should be on the more profitable silver necklace.