Question

(1.5 points) An organization has a revenue of $250 million, purchases of $150 million, and labor and overhead of 65 million giving a profit of $35 million before tax. SG\&A and interest costs another 25 million. A process improvement project reduced the purchase cost by 4%. Calculate the percentage increase in net profit.

Answer 1

Step-by-step explanation:

Let’s calculate the percentage increase in net profit after the process improvement project reduced the purchase cost by 4%.

First, we’ll calculate the new purchase cost after the 4% reduction: New purchase cost = $150 million * (1 - 0.04) = $144 million

Next, we’ll calculate the new profit before tax: New profit before tax = Revenue - New purchase cost - Labor and overhead New profit before tax = $250 million - $144 million - $65 million = $41 million

Now, we’ll calculate the new net profit after subtracting SG&A and interest costs: New net profit = New profit before tax - SG&A and interest costs New net profit = $41 million - $25 million = $16 million

Finally, we’ll calculate the percentage increase in net profit: Percentage increase in net profit = ((New net profit - Old net profit) / Old net profit) * 100% Percentage increase in net profit = (($16 million - $10 million) / $10 million) * 100% = 60%

Therefore, the process improvement project that reduced the purchase cost by 4% resulted in a 60% increase in net profit