Help on question (b), please/! Kamal Fatehl production manager of Kennesaw Manuf
ID: 350657 • Letter: H
Question
Help on question (b), please/!
Kamal Fatehl production manager of Kennesaw Manufacturing, finds his profit at $31,200 (as shown in the statement below) inadequate for expanding his business. The bank is insisting on an improved profit picture prior to approval of a loan for some new equipment. Kamal would like to improve profit line to $41,200 so he can obtain the bank's approval for the loan. Sales Cost of supply chain purchases Other production costs Fixed costs Profit 240,000 156,000 24,000 28,800 31,200 % of sales 100% 85% 10% 12% 13% a) What percentage improvement is needed in a supply chain strategy for profit to improve to $41,200? What is the cost of material with a $41,200 profit? A decrease of 6.4 % in supply-chain costs is required to yield a profit of $41,200, for a new cost of supply chain purchases of $ 146000. (Enter your response for the percentage decrease to one decimal place and enter your response for the new supply chain cost as a whole number.) b) What percentage improvement is needed in a sales strategy for profit to improve to $41,200? What must sales be for profit to improve to $41,200? An increase of 14.211% in sales is required to yield a profit of $41,200, for a new new level of sales of $2500001 (Enter your response for the percentage increase to one decimal place and enter your response for the new sales as a whole number.)Explanation / Answer
Following to be noted :
Profit = Sales – Cost of supply chain purchase – Other production cost – Fixed cost
It is also to be noted that , when sales increases cost of supply chain purchase and Other Production costs also will increase proportionately. However, Fixed cost will remain unchanged.
Let the value of sales for a profit of $41200 = 100.N
Corresponding ,
Cost of supply chain purchase ( 65% of sales ) = 65.N
Other production cost ( 12% of sales ) = 12.N
And, Fixed cost = $28,800
Therefore ,
41200 = 100.N – 65.N – 12.N – 28,800
Or, 41200 = 23.N – 28,800
Or, 23.N = 70000
Or, N = 70000/23
Or, 100.N = 70000 X 100/23
Or, 100.N = 304347.82 ( 304348 ROUNDED TO NEAREST WHOLE NUMBER )
Therefore ,
New level of sales = $304348
Percentage increase in sales
= ( New level of sales – Old level of sales) / Old level of sales x 100
= ( 304348 – 240,000)/240,000 x 100
= 26.81 %
AN INCREASE OF 26.81 % IN SALES IS REQUIRED TO YIELD A PROFIT OF $41200, FOR A NEW LEVEL OF SALES OF $304348
AN INCREASE OF 26.81 % IN SALES IS REQUIRED TO YIELD A PROFIT OF $41200, FOR A NEW LEVEL OF SALES OF $304348
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