Hau Lee Furniture, Inc., spends 55% of its sales dollars in the supply chain and
ID: 354084 • Letter: H
Question
Hau Lee Furniture, Inc., spends 55% of its sales dollars in the supply chain and finds its current profit of $28,000 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 $33,000 so he can obtain the bank's approval for the loan.
Current Situation
Sales
$140,000
Cost of material
$77,000
(55%)
Production costs
$28,000
(20%)
Fixed cost
$7,000
(5%)
Profit
$28,000
(20%)
a) What percentage improvement is needed in the supply chain strategy for profit to improve to
$33,000? What is the cost of material with a $33,000 profit?
A decrease of nothing% in material (supply-chain) costs is required to yield a profit of
$33,000, 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.)
Current Situation
Sales
$140,000
Cost of material
$77,000
(55%)
Production costs
$28,000
(20%)
Fixed cost
$7,000
(5%)
Profit
$28,000
(20%)
Explanation / Answer
a) Increase in profit required = 33000 - 28000 = $ 5000
Cost of material has to decrease by an equal amount, i.e. $ 5000
Percentage improvement in supply chain strategy (cost of material) needed = 5000/77000 = 6.5 %
Cost of material with a $ 33000 profit = 77000 - 5000 = $ 72,000
A decrease of ___ 6.5 %___ in material (supply-chain) costs is required to yield a profit of $33,000, for a new material cost of $ ___ 72,000 ___.
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