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Mr bogasu the English teacher of grade 12 learners planned to resign at the end of the year and become a taxi owner as he has lost interest in his work. The following is a sample of income and expenses of one month from one taxi owner mentoring him.

Income: collected fares R 15900

Expenses: taxi association R350

Taxi license R450

Insurance for the taxi R362

Maintenance cost : 1. Car wash R80

2.fuel R9500

3. Repairs R600

Total income: R15900

Total expenses: R11342

Questions:

What are variable costs?

List three variable costs.

Did the mentor make profit? Show all calculations.

Determine the mentors profit margin. Round off to two decimal numbers.

How can the mentor increase his profit?
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## 1 Answer

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What are variable costs?

Variable costs are the opposite of fixed costs. A variable cost is an expense that changes with the production output. Variable costs increase or decrease depending on production volumes. They are directly proportional to production volumes, this means that: they rise as production increases and fall as production decreases. In this case, production is the operation and mantainance of the taxi(s).

List three variable costs.

From the list above, the variable costs are:

1. Car wash
2. fuel
3. Repairs

Did the mentor make profit? Determine the mentors profit margin. Round off to two decimal numbers.Show all calculations.

$\text{Profit} = \text{Total Income} - (\text{Fixed Costs} + \text{Variable Costs})$

which is the same as:

$\text{Profit} = \text{Total Income} - \text{Total Expenses}$

So in this case we can substitute in the equation like this todetermin whether the mentor made a profit and what the value was:

$Profit = R15900 - R11342$

Therefore the profit is:

$R4558.00$

How can the mentor increase his profit?

The mentor can increase the profit by minimzing the variable costs and maximizing income. For example,  the frequency of going to the car wash or repairs should be reduced and only done when absolutely necessary.

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