Hau Lee Furniture Inc spemds 45% of its sales dollars in the supply chain and fi

Question

Hau Lee Furniture Inc spemds 45% of its sales dollars in the supply chain and finds its current profit of $49,000 inadequate. The bank is insisting on an improved profit picture prior of a loan for some new equipment. hau would like to improve the profit line to $54,000 so he can obtain the banks approval for the loan sales 140,000 cost of matierla 63,000 production costs 21,000 fixed costs 7,000 profit 49,000

What percentage improvement is needed in the supply chain strategy for profit to improve to $54,000? What is the cost of material with a $54,000 profit?decrease of

nothing%

in material (supply-chain) costs is required to yield a profit of

$54,000,

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.)

Explanation / Answer

sales = $140000

costs: cost of material = 63000 + production cost = 21000 + fixed cost = 7000 = $91000

profit = $ 140000 - $ 91000 = $ 49000

now in order to increase profit to $54000, we need to increase profit by $ 5000 and reduce total costs by $ 5000. now the fixed costs are going to remain fixed, production costs also depend upon no of units produced and not on the cost of material, therefore total costs rduce by reduction in cost of material alone.

so new cost of material = $63000 - $5000 = $58000

new % of cost of material of sales = 58000/140000 * 100 = 41.4 %

this implies a reduction of 45-41.4 = 3.6%

%improvement in supply chain strategy = 3.6% decrease, and new cost of material = $ 58000.

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