Please answer all or none and round correctly. Thank you. A.Suppose a company ha
ID: 371962 • Letter: P
Question
Please answer all or none and round correctly. Thank you.
A.Suppose a company has $10,000,000 million in (annual) revenue and spends 45% of its revenues on purchases. By how much can this company increase its bottom line (profits) if it can decrease purchasing costs by 0.75%? (Display your answer as a whole number.)
b. A small company has $4,000,000 in (annual) revenue, spends 45% of its revenues on purchases, and has a net profit margin of 5.25%. They would like to increase their profits and they are looking at focusing in one of two directions. First, they think they can save 1.00% on their purchase expenses. Or second, they can focus on increasing sales.
By how many dollars would they have to increase sales in order to equal a 1.00% savings to purchasing expenses? (Display your answer as a whole number.)
Explanation / Answer
Answer to question A :
Original purchase cost = 45% of revenue 10,000,000 = 4,500,000
When purchase cost decrease by 0.75% of its original purchase cost , the decrease in purchase cost = 0.75/100 x4,500,000 = $33,750
Increase in profit will be equal to decrease in purchase cost.
Therefore , company can increase its bottom line by $33,750 if it reduces its purchase cost by 0.75%
Answer to question b :
Amount of money spent by company on purchase = 45% of revenue 4,000,000 = $1800000
Net profit margin of the company = 5.25% of revenue 4,000,000 = $210000
1% savings in purchase expense = 1% of 1800000 = $18,000
Therefore, They have to increase sales by $18,000 in order to equal a 1% savings in purchase expense
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