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.
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.
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.
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.