If sales are increasing but profit is decreasing, what should an entrepreneur check first?
Answer and explanation
Correct answer: Costs, pricing, and cost per unit
Sales measure the value or volume of revenue, whereas profit depends on revenue minus costs. Profit can fall when raw material, wages, delivery, discounts, overheads, or cost per unit rise faster than sales, or when prices are set too low. The entrepreneur should therefore review costs and pricing before unrelated matters such as decoration or colour.
Frequently asked questions
What is the correct answer to this question?
Costs, pricing, and cost per unit
Why is this the correct answer?
Sales measure the value or volume of revenue, whereas profit depends on revenue minus costs. Profit can fall when raw material, wages, delivery, discounts, overheads, or cost per unit rise faster than sales, or when prices are set too low. The entrepreneur should therefore review costs and pricing before unrelated matters such as decoration or colour.
Which subject and chapter does this question cover?
This is a Class 11 Business Studies question. Chapter: Sources of Business Finance. Topic: Concept, nature and importance of business finance.
