Kamal Fatehl, production manager of Kennesaw Manufacturing, finds his profit at
ID: 380674 • Letter: K
Question
Kamal Fatehl, production manager of Kennesaw Manufacturing, finds his profit at $15,000--Inadeguate 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. a) What percentage improvement is needed in a supply chain strategy for profit to improve to $25,000? b) What percentage improvement is meeded in a sales strategu for pofit to improve to $25,000? What must sales be to improve to $25,000? % of Sales Sales Cost of Supply Chain $ Other Production Cos Fixed Costs Profit 250,000 175,000 30,000 30,000 15,000 100% 70% 12% 12 6%Explanation / Answer
Answer to question a :
Profit = Sales – Cost of supply chain purchase – Other production cost – Fixed cost
Hence for “delta” increase in profit, cost of supply chain must reduce by “delta”
Required increase in profit = $25,000 - $15,000 = $10,000
Hence required reduction in supply chain cost = $10,000
Thus, percentage improvement in supply chain strategy
= Reduction in supply chain cost / Cost of supply chain x 100
= 10000/175,000 x 100
= 5.71 %
PERCENTAGE IMPROVEMENT NEDED IN SUPPLY CHAIN STRATEGY = 5.71 %
Answer to question b :
Following are to be noted :
Since, Fixed cost remains unchanged, For a profit to increase by “delta”, ( Sales – Cost of supply chain purchase – Other production cost ) also to improve by “delta”
Cost of supply chain purchase = 0.70 x Sales
Other production cost = 0.12 x Sales
Now,
Target increase in profit = $25000 - $15000 = $10000
Let corresponding increase in sales value = S
Therefore,
Corresponding increase in supply chain purchase = 0.7.S
Corresponding increase in production cost = 0.12.S
Therefore ,
Increase in ( Sales – Cost of supply chain purchase – Other production cost ) = $10,000
Or, S – 0.70.S – 0.12.S = 10,000
Or, 0.18.S = 10,000
Or, S = 55555.55
Hence % increase in sales = $55555.55 / 250,000 x 100 = 22.22 %
New level of sales = 250,000 + 55555.55 = = $305555.55
PERCENTAGE IMPROVEMENT NEDED IN SUPPLY CHAIN STRATEGY = 5.71 %
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.