If sales are increasing but profit is decreasing, what should the entrepreneur check?
Answer and explanation
Correct answer: The relationship between costs and profit margin
Sales measure the value or volume sold, while profit remains after relevant costs are deducted. Sales can rise while profit falls if material, wages, transport, promotion, discounts, or other costs increase faster than revenue. The entrepreneur should examine cost records and margins rather than infer profitability from sales alone.
Frequently asked questions
What is the correct answer to this question?
The relationship between costs and profit margin
Why is this the correct answer?
Sales measure the value or volume sold, while profit remains after relevant costs are deducted. Sales can rise while profit falls if material, wages, transport, promotion, discounts, or other costs increase faster than revenue. The entrepreneur should examine cost records and margins rather than infer profitability from sales alone.
Which subject and chapter does this question cover?
This is a Class 12 Business Studies question. Chapter: Controlling. Topic: Analysing deviations.
