Hau Lee Furniture Inc., spends 50% of its sales dollars in the supply chain and

Question

Hau Lee Furniture Inc., spends 50% of its sales dollars in the supply chain and find its current profit of $20,000 inadequate. The bank is insisting on an improved profit picture pri or to approval of a loan for some new equipment. Hau would like to improve the profit line to $25,000 so he can obtain the bank's approval for the loan. Current Situation $80,000 Sales cost of material $40,000 (50%) Production costs $16,000 (20%) Fixed cost $4,000 (5%) Profit $20,000 (25%) a) What percentage improvement is needed in the supply chain strategy for profit to improve to $25,000? What is the cost of material with a $25,000 proft? A decrease of 12.5 in material (supply-chain costs is required to yield a profit of $25,000, for a new material cost of 35,000. (Enter your response for the percentage decrease to one decimal place and enter your response for the new material cost as a whole number) b) What percentage improvement is needed in the sales strategy for profit to improve to $25,000? What must sales be for profit to improve to $25,000? An increase of in sales is required to yield a profit of $25,000, for a new new level of sales of Rnter your response for the percentage increase to one decimal place and enter your response for the new sales as a whole number)

Explanation / Answer

Sales strategy:

Profit percentage remain same even if there is a change in sales value

Profit % =25 %

New profit value =25000

New sales value= New profit value/profit %

=25000/.25

=100000

Therefore, New sales value is $100000

Increase in sales % = (100000-80000)/80000 * 100

= 25%

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