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:
![\[ \text{Percentage Improvement} = \left( \frac{\text{Current Profit} - \text{Desired Profit}}{\text{Current Supply Chain Cost}} \right) * 100 \]](https://img.qammunity.org/2024/formulas/business/high-school/w7wtjnsdr4vz7srvr36zbt2a26acbz6mfv.png)
![\[ \text{Percentage Improvement} = \left( (25,000 - 30,000)/(45,000) \right) * 100 \]](https://img.qammunity.org/2024/formulas/business/high-school/qt6h5cururl5c97ot07gsjjf0hzmszk3q3.png)
![\[ \text{Percentage Improvement} = \left( (-5,000)/(45,000) \right) * 100 \]](https://img.qammunity.org/2024/formulas/business/high-school/cmmz9uzj40ys1g6q4k7v99hiyqd4rjaa6u.png)
![\[ \text{Percentage Improvement} \approx -11.1\% \]](https://img.qammunity.org/2024/formulas/business/high-school/8czwapkwts0r4f3jyjhm0wpcn73tcb1m4f.png)
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:
![\[ \text{New Material Cost} = \text{Current Material Cost} * (1 - \text{Percentage Improvement}) \]](https://img.qammunity.org/2024/formulas/business/high-school/71pfmtsxgy1mef5uo3pzmk4y5g0dn2jc5j.png)
![\[ \text{New Material Cost} = 45,000 * (1 - 0.111) \]](https://img.qammunity.org/2024/formulas/business/high-school/5nuxfht7rwsuv7af1swnwr5tuv7u472bi2.png)
![\[ \text{New Material Cost} \approx 40,005 \]](https://img.qammunity.org/2024/formulas/business/high-school/jc283jn385lsyx07hzybu8ciydiz0hj3wa.png)
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:
![\[ \text{Percentage Improvement} = \left( \frac{\text{Desired Profit} - \text{Current Profit}}{\text{Current Sales}} \right) * 100 \]](https://img.qammunity.org/2024/formulas/business/high-school/kfizd9y8v5a8gp96txnqiaqnrxao4zv4ry.png)
![\[ \text{Percentage Improvement} = \left( (30,000 - 25,000)/(100,000) \right) * 100 \]](https://img.qammunity.org/2024/formulas/business/high-school/3f7qnnih2anqtstfhiigjdy4lttqcby28k.png)
![\[ \text{Percentage Improvement} = \left( (5,000)/(100,000) \right) * 100 \]](https://img.qammunity.org/2024/formulas/business/high-school/n7cqi0zmrfqqw5uhxgsshntaf4yj0lz4yh.png)
![\[ \text{Percentage Improvement} = 5\% \]](https://img.qammunity.org/2024/formulas/business/high-school/904w2ypmayrwuhw48vvqlujl6kgx2imr2s.png)
So, an increase of 5% in sales is required to yield a profit of $30,000.
To find the new level of sales:
![\[ \text{New Sales} = \text{Current Sales} * (1 + \text{Percentage Improvement}) \]](https://img.qammunity.org/2024/formulas/business/high-school/ns6jb1mku369xes6wkplrh0c3xj0nfngsd.png)
![\[ \text{New Sales} = 100,000 * (1 + 0.05) \]](https://img.qammunity.org/2024/formulas/business/high-school/dxe1pt8izczowwjaz5lvfxazcoi8e1d4t4.png)
![\[ \text{New Sales} = 100,000 * 1.05 \]](https://img.qammunity.org/2024/formulas/business/high-school/qrd3nn9djgaxx6abjjmi2yrx51uxcfof30.png)
![\[ \text{New Sales} \approx 105,000 \]](https://img.qammunity.org/2024/formulas/business/high-school/7uqc9ogmysgcoi34nfvar6u3y0yt9n18pt.png)
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.)