Question

Hau Lee? Furniture, Inc., spends

45?%

of its sales dollars in the supply chain and finds its current profit of

?$35,000

inadequate. The bank is insisting on an improved profit picture prior to approval of a loan for some new equipment. Hau would like to improve the profit line to

?$40,000

so he can obtain the? bank's approval for the loan.

                                                                                                                                                                                                                                                                                                                                           

	Current Situation
Sales	?$140,000
Cost of material	?$63,000 ?(45?%)
Production costs	?$28,000 ?(20?%)
Fixed cost	?$14,000 ?(10?%)
Profit	?$35,000 ?(25?%)

?a) What percentage improvement is needed in the supply chain strategy for profit to improve to

?$40,000??

What is the cost of material with a

?$40,000

?profit?

A decrease of

7.94?%

in material? (supply-chain) costs is required to yield a profit of

?$40,000?,

for a new material cost of

?$58000.

?(Enter your response for the percentage decrease to one decimal place and enter your response for the new material cost as a whole? number.)

?b) What percentage improvement is needed in the sales strategy for profit to improve to

?$40,000??

What must sales be for profit to improve to

?$40,000??

An increase of

in sales is required to yield a profit of

?$40,000?,

for a new new level of sales of

?(Enter your response for the percentage increase to one decimal place and enter your response for the new sales as a whole?number.)

Answer 1

a) What percentage improvement is needed in the supply chain strategy for profit to improve to $ 40,000?

Answer:- For-Profit to be $40,000 the new cost Table would be:-

The percentage improvement required = (5000/ 63000) * 100 = 7.9365 %

b) What percentage improvement is needed in the sales strategy for profit to improve to $ 40,000?

What must sales be for profit to improve to $ 40,000? In this case there can be two scenarios, first, the proportion of each type of cost would remain same, two only the sales would increase by $ 5000.

Scenario 1:-

Sales need to increase proportionately:- In this case the 25 % of the total Sales Value( as the company has 25% profit margin) = $ 40,000

=> 0.25 * Sales = 40,000

=> New Sales = $ 160,000

Therefore % increase required = (20,000 / 120,000) * 100 = (1/6) * 100 = 16.66667%

Sceanrio 2:-

Only sales increase by $5000 ,

New Sales = $ 145,000

Therefore % increase reuqired = (5,000 / 120,000) * 100 = (1/24) * 100 = 4.2%