Business Studies – 5.3.2 Statement of profit or loss | e-Consult
5.3.2 Statement of profit or loss (1 questions)
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Calculation of Profit:
- Revenue per cupcake: £3
- Cost per cupcake: £1.50
- Profit per cupcake: £3 - £1.50 = £1.50
- Total profit: £1.50 x 500 = £750
Is the profit sufficient?
£750 profit may not be sufficient to continue operating. While a positive profit is essential, the bakery needs to consider other factors:
- Fixed Costs: The bakery likely has fixed costs such as rent, utilities, and equipment depreciation. The £750 profit needs to cover these costs. Without knowing the fixed costs, it's impossible to say if the bakery is truly viable.
- Opportunity Cost: Could the owner earn more by investing the £750 elsewhere?
- Future Growth: Is the bakery planning to expand? The profit should be reinvested to support growth.
- Competition: The bakery needs to consider the level of competition in the market. A small profit margin might not be sustainable if competitors offer similar products at lower prices.
- Customer Satisfaction: Are customers happy with the quality and price of the cupcakes? Unhappy customers will lead to lower sales.
Conclusion: While the £750 profit is a positive sign, a comprehensive assessment is needed, considering fixed costs, opportunity costs, future plans, competition, and customer satisfaction, to determine the bakery's long-term viability.