Hau Lee? Furniture, Inc., spends 55?% of its sales dollars in the supply chain a
ID: 327381 • Letter: H
Question
Hau Lee? Furniture, Inc., spends 55?% of its sales dollars in the supply chain and finds its current profit of ?$5,000 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 ?$10,000 so he can obtain the? bank's approval for the loan.
Current Situation Sales ?$100,000
Cost of material ?$55,000 ?(55?%)
Production costs ?$25,000 ?(25?%)
Fixed cost ?$115,000 ?(15?%)
Profit ?$5,000 ?(5?%)
?a) What percentage improvement is needed in the supply chain strategy for profit to improve to ?$10 comma 00010,000?? What is the cost of material with a ?$10,000 ?profit? A decrease of ?-% in material? (supply-chain) costs is required to yield a profit of ?$10,000?, for a new material cost of ?$-. ?(Enter your response for the percentage decrease to one decimal place and enter your response for the new material cost as a whole? number.)
Explanation / Answer
Following to be noted :
Profit = Sales – Cost of material – Production cost – Fixed cost
Thus for every $1 reduction in material cost , profit improves by $1 .
Current level of profit = $5000
Target level of profit = $10,000
Therefore , increase in profit =$10,000 - $5,000 = $5,000
Therefore , material cost needs to reduce by $5000 from current level of cost for profit to increase to $10,000
Current level of material cost = $55,000
Therefore , target level of material cost = $ 55,000 - $5,000 = $50,000
Percentage decrease in material cost = 5000/55,000 x 100 = 9.09% ( 9.1 % ROUNDED TO 1 DECIMAL PLACE )
A DECREASE OF 9..10 % IN MATERIAL COST IS REQUIRED TO YILED A PROFIT OF $10,000 FOR A NEW MATERIAL COST OF $50,000
A DECREASE OF 9..10 % IN MATERIAL COST IS REQUIRED TO YILED A PROFIT OF $10,000 FOR A NEW MATERIAL COST OF $50,000
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