Question

Hau Lee​ Furniture, Inc., spends 45​% of its sales dollars in the supply chain and finds its current profit of ​$35,000 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 ​$40,000 so he can obtain the​ bank's approval for the loan. Current Situation Sales ​$140,000 Cost of material ​$63,000 ​(45​%) Production costs ​$35,000 ​(25​%) Fixed cost ​$7,000 ​(5​%) Profit ​$35,000 ​(25​%) ​a) What percentage improvement is needed in the supply chain strategy for profit to improve to ​$40,000​? What is the cost of material with a ​$40,000 ​profit? A decrease of nothing​% in material​ (supply-chain) costs is required to yield a profit of ​$40,000​, for a new material cost of ​$ nothing. ​(Enter your response for the percentage decrease to one decimal place and enter your response for the new material cost as a whole​ number.)

Answer 1

Answer:

a) 7.93%

b) 58,000 dolllars

Explanation:

a) We want to increase the profits by 5,000 thus we divide by our current supply chain cost to know how much do we need to decrease it:

5,000 / 63,000 = 0.0793 = 7.93%

b) material cost if estrategy is success:

original cost less 5,000 cost reduction

63,000 - 5,000 = 58,000