In 2021 Electromac, Staffordshire’s largest sportswear group, announced its profits would be 22% lower than forecast.
Which one of the following is the most likely reason for the drop in profit?
Select ONE answer
- Increased productivity of its workforce
- Overestimation of projected sales
- Minimisation of total costs
- Reduction in competition
Show the workings to arrive at your answer, and explain and justify your reasons:
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This multiple-choice question is suitable for Business Studies KS4 & KS5 classes
The answer is 2
- Not correct – profits would have increased rather than decreased as workers were more efficient in making sportswear resulting in lower costs and potentially an increase in profits.
- Correct – Definition of profits e.g. total revenue – total costs OR projected sales e.g. the number of products a firm expects to sell over a given time period. Sales forecasts can be affected by many factors such as external influences and so Electromacs’ projected sales may have been overestimated. If this is the case then the revenue received by Electromac will be less than predicted, which would mean that the actual profit would then be less than the predicted profit.
- Not correct – Minimising total costs would have led to an increase in profits as profit is TR-TC.
- Not correct – If there had been a reduction in competition, Electromac would have increased sales and therefore profit as there would be less choice for customers.
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