Kamal Fatehl production manager of Kennesaw Manufacturing, finds his profit at $
ID: 427489 • Letter: K
Question
Kamal Fatehl production manager of Kennesaw Manufacturing, finds his profit at $5,200 (as shown in the statement below) inadequate 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 profit line to $15,200 so he can obtain the bank's approval for the loan Sales Cost of supply chain purchases Other production costs Fixed costs Profit 260,000 187 36,400 31,200 5,200 % of sales 100% 72% 14% 12% 2% a) What percentage improvement is needed in a supply chain strategy for profit to improve to $15,200? What is the cost of material with a $15,200 profit? A decrease of ?% in supply chain costs is required to yield a profit of $15,200 or a new cost of supply chain purchases of $ Enter your response for the percentage decrease to one decimal place and enter your response for the new supply chain cost as a whole number.) b) What percentage improvement is needed in a sales strategy for profit to improve to $15,200 What must sales be for profit to improve to $15,200? An increase o L% in sales is required to yield a profit of $15,200 or a new new level of sales o $ Enter your response or he percentage increase o one dec mal place and enter your response for the new sales as a whole number.)Explanation / Answer
a. Assuming that sales are constant at 260,000 let the supply chain costs be “x”
Increase in profit = 15200 – 5200 = 10,000. Thus cost of supply chain purchases should fall by $10,000. % decrease in supply chain costs = 10,000/187200*100 = 5.3%
New cost of supply chain process = 187200 – 10000 = 177200
A decrease of 5.3% in supply chain costs is required to yield a profit of $15,200, for a new cost of supply chain purchases of $177,200.
b. Profit = 2% of sales. Thus 2% of sales = 15200.
Or, sales = 15200/2*100 = 760,000
Thus % increase in sales = (760,000 – 260,000)/260,000 = 192.3%
New sales level = $760,000
An increase of 192.3% in sales is required to yield a profit of $15,200, for a new level of sales of $760,000.
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