Kamal Fatehl production manager of Kennesaw Manufacturing, finds his profit at $
ID: 434821 • Letter: K
Question
Kamal Fatehl production manager of Kennesaw Manufacturing, finds his profit at $5,600 (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 $15,600 so he can obtain the bank's approval for the loan Sales Cost of supply chain purchases Other production costs Fixed costs Profit 280,000 201,600 39,200 33,600 5,600 % of sales 100% 72% 14% 12% 2% a) What percentage improvement is needed in a supply chain strategy for profit to improve to $15,600? What is the cost of material with a $15,600 profit? A decrease ofin supply-chain costs is required to yield a profit of $15,600, for 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 $15,600? What must sales be for profit to improve to $15,600? An increase of % in sales ?s required to y eld a profit of $15,600 or a new new level of sales of $ .(Enter your response for the percentage increase to one decimal place and enter your response or the new sales as a whole number.)Explanation / Answer
The current profit is $5600. The required profit is $15600. This is an increase of $10000.
This means either we should reduce the cost by $10000 or increase the revenue by $10000. In the first problem the task is to reduce the cost of supply chain by $10000. The current cost is $201600. If we reduce this cost by $10000 then the profit will increase by $10000 and make the final profit at $15600. This means the old cost of supply chain purchase is $201600 and the new value is $191600.
a) The decrease of (10000/201600)*100 = 4.9% in supply chain costs is required to yield a profit of $15600 for a new cost of supply chain purchases of $191600.
Now the increase of revenue can be handled in two ways. One is through economies of scale, where we maintain the same percentage of sales as profit. The second option is to keep the cost as it is and boost the sale by 10000. Let’s take the latter method and this makes the new sales level as 290000.
b) An increase of (10000/280000)*100 = 3.5% in sales is require to yield a profit of $15600 for a new level of sales of 290000
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