Question

Kamal Fatehl production manager of Kennesaw Manufacturing, finds his profit at $18,200 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 $28,200 so he can obtain the bank's approval for the loan.

% of Sales
Sales $260,000 100%
Cost of supply chain purchases 187,200 72%
Other production costs 26,000 10%
Fixed Costs 28,600 11%
Profit 18,200 7%
What percentage improvement is needed in a supply chain strategy for profit to improve to $28,200? What is the cost of the material with a $28,200 profit?

A decrease of ____% in supply chaing costs is required to uield a profit of $28,200 for a new cost of supply chaing purchases of $______.

Answer 1

A decrease of 54.95% in supply chain costs is required to yield a profit of $28,200. The cost of material with a $28,200 profit is $231,340.

Step-by-step explanation:

To determine the percentage improvement needed in the supply chain strategy for the profit to improve to $28,200, we need to calculate the current profit and the required improvement. From the given information, the profit is $18,200, which is 7% of the sales. We can use this information to calculate the current sales:

Sales = Profit / Profit Margin

Sales = $18,200 / 7% = $260,000

Now, we can calculate the required improvement in profit:

Required Improvement = Target Profit - Current Profit

Required Improvement = $28,200 - $18,200 = $10,000

To find the percentage improvement, we can use the following formula:

Percentage Improvement = (Required Improvement / Current Profit) * 100

Percentage Improvement = ($10,000 / $18,200) * 100 = 54.95%

Therefore, a decrease of 54.95% in supply chain costs is required to yield a profit of $28,200.

To find the cost of material with a $28,200 profit, we can use the profit margin:

Profit Margin = Profit / Sales

Profit Margin = $28,200 / $260,000 = 10.85%

We can now calculate the cost of material:

Cost of Material = Sales * (1 - Profit Margin)

Cost of Material = $260,000 * (1 - 10.85%)

Cost of Material = $260,000 * (1 - 0.1085) = $231,340