10. When purchasing finds savings in the cost of goods sold, A. this is called t

Question

10. When purchasing finds savings in the cost of goods sold, A. this is called the purchasing effect. B. such savings fall directly to the bottom line. c. both of the above are true. D. neither of the above is true. 11. Which of the following statements concerning sourcing is true? A. The trend in most industries is to increase vertical integration for improved flexibility. B. The primary goal of sourcing is to find suppliers offering the lowest price per unit. C. Evidence of a commitment to social responsibility is often required of suppliers. D. All of the above. 12. The profit leverage effect (ratio) is calculated by A. dividing 1.0 by the profit margin. B. dividing pretax earnings by the cost of goods sold. C. dividing sales by the cost of goods sold. D. none of the above. 13, A company has sales of $150 million, cost of goods sold of S100 million, and a before-tax profit of 8%. If purchasing was able to reduce the cost of goods sold by $5 million, how much additional sales would be required to achieve the same impact on profit? A. $5 million. B. $10 million. C. $55 million. D. $62.5 million.

Explanation / Answer

10. C. both of the above are true

11. D. All of the above

12. A. dividing 1.0 by the profit margin

This is better understood with the help of example in the next question

13.D. $ 62.5 million

Profit leverage effect = 1/profit margin = 1/8% = 12.5

Purchasing savings = $ 5 million

Equivalent increase in sales required

= Desired increase in profit (equal to purchasing savings)* Profit leverage effect

= 5*12.5

= $ 62.5 m

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