Question

Your firm has a ROS of 12.5 percent. The company's goal is to increase sales by $493,933 this year. How much, in dollars, would you have to reduce your logistics costs to provide the same marginal amount of profit?

Answer 1

To maintain the same marginal profit with an increased sales goal of $493,933 and a Return on Sales (ROS) of 12.5%, the firm would need to reduce logistics costs by $61,741.625.

Step-by-step explanation:

The student's question relates to the concept of Return on Sales (ROS) and how it would affect the logistics costs if the company wants to increase sales while maintaining the same marginal profit. The ROS is the ratio of profit to sales and is expressed as a percentage.

In this case, a firm with a ROS of 12.5 percent wants to increase sales by $493,933. To maintain the same marginal amount of profit, logistics costs need to be reduced by the amount that would equate to the profit margin from the increased sales. Since the ROS is 12.5%, the increase in sales would theoretically generate an additional profit of 12.5% of $493,933, which is $61,741.625.

Therefore, to provide the same marginal profit without increasing sales, the firm would need to reduce logistics costs by this amount.