SM.66 A small regional retailer is looking for ways to increase profts. Given it
ID: 428095 • Letter: S
Question
SM.66 A small regional retailer is looking for ways to increase profts. Given its impressive record of growth, the sales and marketing vice president wants to target a 5% increase in sales to meet the profitability goals. The company currently has revenues of $22,000,000 (annually), spends 58% of its revenues on purchases, and has a net profit margin of 2.75%. You are a buyer working for this company and you want to show the vice president that it may be easier to reach the profitability goals by lowering purchasing expenses. If the company achieves its revenue growth target of 5%, by how many dollars would revenue increase? (Display your answer as a whole number.)Explanation / Answer
Q1)
Increase in revenue = 5% of 22000000 = $1100000
Q2)
Company has a net profit margin of 2.75%.
Incremental profit from increase in revenue = 2.75% of Increase in Revenue
= 2.75% of 1100000 = $30250
The purchase expenses have to reduce by $30250.
Initial purchase expenses = 58% of 22000000 = $12760000
Percentage decrease required in purchase expenses = (30250/12760000)*100 = 0.24%
Q3)
Number of times sales increase targeted percentage is higher = 5/0.24 = 20.833 = 21
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.