Question

A small company has $11,750,000 in (annual) revenue, spends 53% of its revenues on purchases, and has a net profit margin of 8%. They would like to increase their profits and they are looking at focusing in one of two directions. First, they think they can save 2.35% on their purchase expenses. Or second, they can focus on increasing sales.

By what percentage would they have to increase sales in order to equal a 2.35% savings to purchasing expenses? (Write your answer as a percentage, and display your answer to two decimal places.)

Answer 1

To equal a 2.35% savings on purchasing expenses, the company would need to increase its sales revenue by 14.38%.

Step-by-step explanation:

To determine the percentage by which sales would need to increase to equal a 2.35% savings on purchasing expenses, we can set up an equation. Let's assume the current sales revenue is S. The current purchasing expenses would be 0.53S, and the current net profit would be 0.08S.

If the company saves 2.35% on purchasing expenses, the new purchasing expenses would be 0.53S - 0.0235(0.53S) = 0.53S - 0.0125S = 0.5175S. To equal this savings through increased sales, the new net profit would need to be 0.08S + 0.0235(0.53S) = 0.08S + 0.0125S = 0.0925S.

Therefore, to equal a 2.35% savings on purchasing expenses, the company would need to increase its sales revenue by (0.0925S - 0.08S) / S * 100% = 14.38%.