Question

Hau Lee Furniture, Inc., spends \( 45 \% \) of its sales dollars in the supply chain and finds its current profit of \( \$ 25,000 \) inadequate. The bank is insisting on an improved profit picture pri

Answer 1

To calculate the firm's accounting profit, subtract the total expenses from the sales revenue.

Step-by-step explanation:

To calculate the firm's accounting profit, we need to subtract the total expenses from the sales revenue.

1. Labor expenses: $600,000
2. Capital expenses: $150,000
3. Material expenses: $200,000

Adding up these expenses, we get $950,000. To calculate the accounting profit, we subtract the total expenses from the sales revenue: $1,000,000 - $950,000 = $50,000. Therefore, the firm's accounting profit is $50,000.

Answer 2

a) A decrease of approximately 11.1% in material (supply-chain) costs is required to yield a profit of $30,000, resulting in a new material cost of $40,005.

b) An increase of approximately 5% in sales is required to yield a profit of $30,000, resulting in a new level of sales of $105,000.

How did we get these figures?

a) Supply Chain Strategy Improvement:

1. Current profit: $25,000

2. Desired profit: $30,000

3. Current supply chain cost: $45,000 (45% of sales)

To find the percentage improvement needed in the supply chain strategy, use the formula:

`\[ \text{Percentage Improvement} = \left( \frac{\text{Current Profit} - \text{Desired Profit}}{\text{Current Supply Chain Cost}} \right) * 100 \]`

`\[ \text{Percentage Improvement} = \left( (25,000 - 30,000)/(45,000) \right) * 100 \]`

`\[ \text{Percentage Improvement} = \left( (-5,000)/(45,000) \right) * 100 \]`

`\[ \text{Percentage Improvement} \approx -11.1\% \]`

So, a decrease of approximately 11.1% in material (supply-chain) costs is required to yield a profit of $30,000.

To find the new material cost:

`\[ \text{New Material Cost} = \text{Current Material Cost} * (1 - \text{Percentage Improvement}) \]`

`\[ \text{New Material Cost} = 45,000 * (1 - 0.111) \]`

`\[ \text{New Material Cost} \approx 40,005 \]`

Therefore, a decrease of approximately 11.1% in material costs is required, resulting in a new material cost of $40,005.

b) Sales Strategy Improvement:

1. Current profit: $25,000

2. Desired profit: $30,000

3. Current sales: $100,000

To find the percentage improvement needed in the sales strategy, use the formula:

`\[ \text{Percentage Improvement} = \left( \frac{\text{Desired Profit} - \text{Current Profit}}{\text{Current Sales}} \right) * 100 \]`

`\[ \text{Percentage Improvement} = \left( (30,000 - 25,000)/(100,000) \right) * 100 \]`

`\[ \text{Percentage Improvement} = \left( (5,000)/(100,000) \right) * 100 \]`

`\[ \text{Percentage Improvement} = 5\% \]`

So, an increase of 5% in sales is required to yield a profit of $30,000.

To find the new level of sales:

`\[ \text{New Sales} = \text{Current Sales} * (1 + \text{Percentage Improvement}) \]`

`\[ \text{New Sales} = 100,000 * (1 + 0.05) \]`

`\[ \text{New Sales} = 100,000 * 1.05 \]`

`\[ \text{New Sales} \approx 105,000 \]`

Therefore, an increase of approximately 5% in sales is required, resulting in a new level of sales of $105,000.

Complete question:

Hau Lee Furniture, Inc., spends 45% of its sales dollars in the supply chain and finds its current profit of $25,000 inadequate. The bank is insisting on an improved profit picture prior to approval of a loan for some new equipment. Hau would like to improve the profit line to $30,000 so he can obtain the bank's approval for the loan. Current Situation Sales $100,000 $45,000 (45%) $20,000 (20%) $10,000 (10%) $25,000 (25%) Cost of material Production costs Fixed cost Profit

a) What percentage improvement is needed in the supply chain strategy for profit to improve to $30,000? What is the cost of material with a $30,000 profit?

A decrease of....... % in material (supply-chain) costs is required to yield a profit of $30,000, for a new material cost of $.............. . (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 $30,000? What must sales be for profit to improve to $30,000?

An increase of ..........% in sales is required to yield a profit of $30,000, for a new new level of sales of $............... (Enter your response for the percentage increase to one decimal place and enter your response for the new sales as a whole number.)