A retail chain is planning its inventory for the upcoming holiday season across three product categories: Toys, Electronics, and Apparel. The table below shows the projected sales volume and the profit margin (as a percentage of sales) for each category. | Category | Projected Sales Volume (units) | Profit Margin (%) | |---|---|---| | Toys | 10,000 | 25 | | Electronics | 5,000 | 20 | | Apparel | 12,000 | 30 | If the average selling price per unit for all categories is $50, which category is projected to generate the highest total profit?
- AApparel
- BAll categories generate approximately the same total profit.
- CElectronics
- DToys
Show answer & explanationAnswer & explanation
Correct answer: A. Apparel
To calculate the total profit for each category, first find the total revenue (Sales Volume * Average Selling Price) and then apply the Profit Margin. Total Profit = (Sales Volume * Average Selling Price) * (Profit Margin / 100). Toys: (10,000 units * $50/unit) * (25/100) = $500,000 * 0.25 = $125,000 profit. Electronics: (5,000 units * $50/unit) * (20/100) = $250,000 * 0.20 = $50,000 profit. Apparel: (12,000 units * $50/unit) * (30/100) = $600,000 * 0.30 = $180,000 profit. Apparel is projected to generate the highest total profit ($180,000).
Why the other options are wrong
- B. The total profits vary significantly across categories.
- C. Electronics generated $50,000 profit, which is the lowest.
- D. Toys generated $125,000 profit, which is not the highest.
Total Profit Calculation
The process of determining the overall monetary gain from sales by multiplying total revenue by the profit margin, or by multiplying sales volume by average selling price and then by the profit margin.
- Total Revenue = Sales Volume * Average Selling Price.
- Profit = Total Revenue * Profit Margin (as a decimal).
- Crucial for evaluating the financial performance of different product lines or business segments.
Memory trick: Volume times price times margin, reveals the profit's origin.