If material wastage is high but sales are good in a food enterprise, why can profit be low?

Correct answer: Wastage of raw materials increases costs and reduces the profit margin

Profit equals sales revenue minus total cost. Material wastage can raise spending on raw materials, fuel, labour, and disposal without creating saleable output. Therefore, even with good sales, higher total cost can reduce the profit margin. Option B is incorrect because higher sales do not make production costs zero. Exam tip: while calculating profit, consider food cost and wastage cost along with sales.