Why do the profits stay the same?Yousawinner runs a small business that manufactures office furniture. Her best selling products are office chairs and desks. The sales turnover has risen but...

Why do the profits stay the same?

Yousawinner runs a small business that manufactures office furniture. Her best selling products are office chairs and desks. The sales turnover has risen but profits have stayed constant. The business is also experiencing cashflow problems.

Please give and explain reasons why Yousawinner's profits might have stayed the same despite sales turnover increasing.

4 Answers | Add Yours

litteacher8's profile pic

litteacher8 | High School Teacher | (Level 3) Distinguished Educator

Posted on

Cash flow problems are probably leading to higher costs because the company has to borrow money. Also, the cash flow problems might be a result of higher costs, because if you are spending more money on materials you might have less cash. It could be either one causing the other. I suggest a careful cash-flow analysis and finding a way to borrow money cheaper, such as with a business credit card or line of credit.
e-martin's profile pic

e-martin | College Teacher | (Level 1) Educator Emeritus

Posted on

If the cost for making each piece of product remain constant, then profits will remain constant no matter how many pieces are sold.

The general idea is that costs of construction for each piece should go down with increased production. This cost decrease would come from a possible renegotiation with parts vendors so that a company could promise to buy more of Part A per order and thereby get a better price. This savings then represents an increase in profit for the company. 

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

It could be that the firm is experiencing rising costs.  Perhaps the increase in sales has put a strain on the firm's manufacturing capacity.  Because of that, the firm might be operating inefficiently in order to fill all the orders.  Costs rise, so profits don't rise.

nikasho0100's profile pic

nikasho0100 | Student, Grade 12 | (Level 1) Salutatorian

Posted on

This could be because the costs are increasing than the profits of the business.

the cost per unit might be increasing.

Also due to cash flow problems such as lending to much credit periods to its customer, purchasing high level of stocks, purchasing to much of fixed assets @ once.

also the business might not be very productive ans efficents as it before was.

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