In order to exonerate the SCM department and ultimately, your own name, you have
ID: 395585 • Letter: I
Question
In order to exonerate the SCM department and ultimately, your own name, you have decided to run the numbers on your most recently concluded negotiation (Q4 of 2017) to show once and for all how SCM can create value. In this negotiation, you were able to get your supply base to reduce the COGS by 8%. Assignment: Using the numbers below in Table 1, answer the questions below. Table 1 Earnings and Expenses for Q4. 2017: Pre-negotiation Sales $10,000,000 Cost of Goods Sold $9,350,000 Profit $650,000 NOTE: Round your answers up
1. What is the new COGS after the 8% negotiated reduction?
2. What is the resulting new profit?
3. What is the difference between the old and new profit, both in terms of dollar amount and percentage? (also known as the reduction in COGS)
NOTE: Round vour answers up Your SCM department has been able to negotiate an additional 4% reduction in the COGS. Using the sales figure from Table 1 and your answers to questions 1-3, answer the following. 6. Using your answers to questions 1-4 (but not 5) as the base, what is the resulting nevw increase in profit because of the additional 4% reduction in COGS? How much does the Marketing department need to increase sales in order to match the new increase in profit? 7.Explanation / Answer
Answer:
Pre-negotiation Sales= $10,000,000
Old Cost of Goods Sold= $9,350,000
Old Profit= $650,000
Now,
COGS is reduced by 8%
= Old COGS * (1 - (8/100))
= Old COGS * (92/100)
= $ 9,350,000 * (92/100)
New COGS = $ 8,602,000 (Answer 1)
= $10,000,000 - $ 8,602,000
New Profit = $ 1,398,000 (Answer 2)
= $ 1,398,000 - $ 650,000
= $ 748,000 (Answer 3)
Old profit % = (Old profit/ Total sales) * 100
= ($ 650,000/ $10,000,000) * 100
= 6.5%
New profit % = (New profit/ Total sales) * 100
= ($ 1,398,000/ $10,000,000) * 100
= 13.98%
Percentage difference in profit = New profit % - Old profit %
= 14% - 6.5%
= 7.5% (Answer 3)
Therefore,
Therefore, Newest COGS= New COGS - (New COGS) * (4/100)
= $ 8,602,000 * (96/100)
Newest COGS = $ 8,257,920
Now, resulting Profit = Total sales – Newest COGS
= $10,000,000 - $ 8,257,920
Newest Profit = $ 1,742,080
The newest increase in profit = Newest profit – New profit
= $ 1,742,080 - $ 1,398,000
= $ 344,080 (Answer 6)
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