Question

11.3

Kamal Fatehl, production manager of Kennesaw Manufacturing, finds his profit at $15,000 (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 the profit line to $25,000 so he can obtain the bank's approval for the loan.

Sales: $250,000 -- 100% of sales

cost of supply chain purchases: 175,000 -- 70% of sales

other production costs: 30,000 -- 12% of sales

fixed costs: 30,000 -- 12% of sales

profit: 15,000 -- 6% of sales

A) what percentage improvement is needed in a supply chain strategy for profit to improve to $25,000? What is the cost of material with a $25,000 profit?

B) what percentage improvement is needed in a sales strategy for profit to improve to $25,000? What must sales be for profit to improve to $25,000? (Hint: See Example 1)

Answer 1

Answer a= For the given da, we can find out

Total cost as $175,000 + 30,000 + 30,000 = $235,000

Percentage improvement in supply chain strategy = (25000-15,000)/175,000= 0.0571 or 5.71%

New supply chain purchase = 175,000 - 25,000 + 15,000 = $165,000

Answer= for having a yeild of $25000, it is important to have a decrease of 5.71% in suppply chain costs

Cost of material= $165000

Answer b=

Percentage improvement in sales strategy = (25000-15,000)/ 250000=0.04 or 4%

New sales= 250000-25,000+15,000 = $240,000

for having a profit of $25000, it is important to have a increase of 4% in sale

new levels of sales= $240000