Elmo will make a profit of $30.55 by selling 65 potholders.
This is an exercise in the formula to calculate the profits obtained from the sale of a product, it is an essential tool in the management of any business. By knowing the profits obtained from the sale of a product, business owners and managers can make informed decisions and adjust their business strategies to maximize their profitability.
Profit is calculated by subtracting the total costs of production from the total revenue earned from the sale of a product. Total production costs include not only the direct costs associated with manufacturing the product, but also indirect costs, such as advertising and marketing costs, the cost of packaging materials, and other overhead.
The total income obtained from the sale of a product is the product of the number of units sold by the sale price per unit. It is important to remember that the selling price per unit must be sufficient to cover both the direct and indirect costs of production, and to provide a reasonable profit.
Once the profit earned from the sale of a product has been calculated, business owners and managers can use this information to improve their profitability. If profits are low, they might consider lowering production costs, raising the selling price, or finding ways to sell more units. On the other hand, if profits are high, they might consider increasing their investment in advertising and marketing to attract more customers and expand their business.
In addition, profit calculation can also help business owners and managers assess the feasibility of launching a new product or expanding into new markets. By calculating total production costs and potential total revenue, they can determine if the new product or market is profitable and make informed decisions about whether to proceed with the launch or expansion.
In order for us to calculate Elmo's profit, we need to determine how much he spent to make the potholders and how much he will earn from selling them.
The total cost of making the handles is the product of the number of handles times the cost per unit:
Total cost = 65 potholders × $1.65/potholder = $107.25
The total revenue from selling the handles is the product of the number of handles times the selling price per unit:
Total revenue = 65 potholders x $2.12/potholder = $137.8
Elmo's profit is the difference between total revenue and total cost:
Profit = Total Revenue - Total Cost
Profit = $137.8 - $107.25 = $30.55
Profit = $30.55
Elmo will make a profit of $30.55 by selling 65 potholders.