Page 272 - Cambridge IGCSE Business Studies

Cambridge IGCSE Business Studies Section 5 Financial information and decisions

ACTIVITY 21.2

Table 21.1 shows Chata’s sales and costs for the first six months of 2013.

January February March April May June

Sales (loaves) 1,600 1,580 1,550 1,530 1,520 1,500
Cost of sales ($) 160 158 155 153 152 150
Expenses ($) 100 100 100 100 100 100

Table 21.1 Chata’s sales and costs, January–June 2013

1 Calculate Chata’s total revenue for the six-month period, January–June.
2 Calculate Chata’s gross profit and profit for the same six-month period.
3 Explain why Chata’s cost of sales changes each month, but the expenses remain the same.
4 Give two reasons which might explain why Chata’s sales of bread have fallen between January and June.

The importance of profit to private sector businesses
TOP TIP

Profit is a reward to business owners for the risk they take in investing their capital
Profit is vital for every business.

into the business. Profit is also used to:
You must understand why it is
270 important.
■ measure the success of a business
■ measure the performance of managers
■ decide whether or not to continue making or selling a product
■ finance the purchase of non-current assets, expand the business, and so on
Private sector businesses:
■ attract investors who will provide the additional funds needed to finance business
see Chapter 2, page 25.
expansion.

ACTIVITY 21.3

Consider the information contained in Table 21.2.

Revenue Profit Dividend per share Retained profit

Company A $340,000 $95,000 $2 $15,000
Company B $260,000 $101,000 $1.60 $27,000
Company C $570,000 $130,000 $1.30 $76,000

Table 21.2 Information for Companies A, B and C

Work in small groups and consider the information in the table above and discuss the following:

1 Which of the three companies do you think has been the most successful and why?
2 Assume you are a shareholder in one of these companies. Giving reasons:
a Which company would you choose as a short-term investment?

b Would you choose a different company if you were looking for a long-term investment?