Question 4: mohini started a business to pay for her doctorate (PHd) in business
ID: 382324 • Letter: Q
Question
Question 4: mohini started a business to pay for her doctorate (PHd) in business. She has a profit of $15,000 as shown below. However, mohini needs more money and has set a goal of $25,000 annually for her profit.
a. What percentage improvement in the supply chain is needed for mohini to meet her goal?
Percent increase: ________
b. What percentage improvement in Sales is needed for mohini to meet her goal?
Percentage Increase ________
c. If mohini can only increase sales to $300,000, how many dollars must the supply chain costs decrease for mohini need to meet her goal?
Cost of Supply Chain must decrease $ __________
sales 250000 Cost of supply chain 175000 variable production costs 30000 Fixed production costs 30000 profit 15000Explanation / 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 = 175000/250000 x Sales = 0.7 x Sales
Other production cost = 30000/250000 x Sales = 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 for Mohini = $55555.55 / 250,000 x 100 = 22.22 %
New level of sales = 250,000 + 55555.55 = = $305555.55
PERCENTAGE IMPORVEMENT IN SALES NEEDED FOR MOHINI = 22.22%
Answer to question c :
When Mohini increase sales to $300,000 , she increase sales by $50,000
As per formula derived in answer #b , if sales increases by S, corresponding increase in profit will be 0.18 x S
Hence , corresponding increase in profit for increase in sales by $50,000 = $0.18 x 50,000 = $9000
However , her target is to increase profit by $10,000
Hence, she has to increase profit by another = $10,000 - $9,000 = $1,000
This increase of $1,000 should come by proportional reduction in supply chain cost.
Hence, supply chain cost must decrease by $ 1,000
COST OF SUPPLY CHAIN MUST DECREASE BY = $1,000
PERCENTAGE IMPROVEMENT NEDED IN SUPPLY CHAIN STRATEGY = 5.71 %
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.