2) 3) Problem 11.2 ? Question Help Hau Lee Furniture. Inc spends 45% of its sale

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2)

3)

Problem 11.2 ? Question Help Hau Lee Furniture. Inc spends 45% of its sales dollars in the supply chain and finds its current profit of $20,000 inadequate. The bank s 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 $25,000 so he can obtain the bank's approval for the loan Sales Cost of material Production costs Fixed cost Profit Current Situation S80,000 S36.000 (4596) $12,000 (15%) $12,000 (15%) $20,000 (25%) a) What percentage improvement is needed in the supply chain strategy for profit to improve to $25,000? What is the cost of material with a $25,000 profit? A decrease of % n material supp y-chain costs is required to yield a profit of S25.000 for a new material cost of S? decrease to one decimal place and enter your response for the new material cost as a whole number) Enter your response or e percentage

Explanation / Answer

1)

a) Here raw material costs is the major cost component and is 45% of the total costs, thus the scope of improvement lies here most.

If material cost is decreased by 5000 then profit will be 25000.

percentage decrease in material cost = 5000/36000= 13.89%

And new Material cost will be $ 31,000

2)

a) Inventory turn-over is a ratio of Cost of goods sold and Average inventory and is a measure of how fast inventory turns around in the system

Inventory turover here = cost of sales/inventory

= 19,080/1,230 = 15.51 meaning Baker MFG is turing inventory at a faster rate as compared to industry leaders

3)

Weeks of supply can be found by dividing 52 weeks by inventory turnover

Last year, inventory turnover = cost of sales/ inventory

= 7.55m/1.55m = 4.87

weeks of supply = 52/4.87 = 10.68 weeks of supply

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