Kamal Fatehl production manager of Kennesaw Manufacturing, finds his profit at $
ID: 328398 • Letter: K
Question
Kamal Fatehl production manager of Kennesaw Manufacturing, finds his profit at $14,000 (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 profit line to $24,000 so he can obtain the bank's approval for the loan Sales Cost of supply chain purchases Other production costs Fixed costs Profit % of sales 100% 72% 11% 12% 5% 280,000 201 ,600 30,800 33,600 14,000 a) What percentage improvement is needed in a supply chain strategy for profit to improve to $24,000? What is the cost of material with a $24,000 profit? (Enter your response or the A decrease of 1% in supply chain costs is required to yield a profit of $24,000 for a new cost of supply chain purchases of $ percentage decrease to one decimal place and enter your response for the new supply chain cost as a whole number.)Explanation / Answer
To be calculated:
(a) Required percentage improvement in supply chain strategy
(b) New cost of material
Solution:
Current profit = $14,000
Desired profit = $24,000
Required increase in profit = Desired profit - Current profit
Required increase in profit = $24,000 - $14,000
Required increase in profit = $10,000
Given the values of other factors remaining the same (unchanged) such as sales, other production costs and fixed costs, the change in the cost of supply chain purchases will be equal to the required increase in the profit to improve to $24,000 from current $14,000.
Therefore,
New cost of supply chain purchases will be calculated as;
New cost of supply chain purchases = Current cost of supply chain purchases - Required increase in profit
New cost of supply chain purchases = $201,600 - $10,000
New cost of supply chain purchases = $191,600
The percentage decrease in supply chain costs is calculated as;
Percentage decrease = (New supply chain costs - Old supply chain costs) / Old supply chain costs x 100
Percentage decrease = [($191,600 - $201,600) / $201,600] x 100
Percentage decrease = (- $10,000 / $201,600) x 100
Percentage decrease = - 4.96% (negative sign denotes decrease in costs)
Percentage decrease = 5.0% (rounding off to one decimal place)
Answer: A decrease of 5.0% in supply-chain costs is required to yield a profit of $24,000 for a new cost of supply chain purchases of $191,600.
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