Correct answer is C. To increase profit by 50% means . to increase profit by 50%
ID: 372687 • Letter: C
Question
Correct answer is C.
To increase profit by 50% means . to increase profit by 50% of 10,000 i.e by 5,000. New profit should be 15,000
By reducing supply cost by 5,000 i.e 10%
Sales = 100,000
New supply cost = 45,000
Prodcution cost = 30,000
Fixed cost = 10,000
New profit = 100,000- 45,00- 30,000- 10,000 = 15,000 $
Let us have a look at other scenario.
New sales = 125,000
New supply cost = 62,500 (50 % of sales)
New production cost = 37,500 (30% of sales)
New fixed cost = 10,000 ( Not going to change with increased production)
(This is an assumption in this case)
New profit = 15,000 $
Explanation / Answer
Scenario: Below is a condensed income statement for X,Y,Z Company. The company wants to increase profit by 50%. Which of the following statements is true as it relates to the scenario presented below? Sales $100,000 Cost of material (supply chain) 50,000 50% Production cost 30,000 30% Fixed cost 10,000 10% Profit $10,000 10% a. To increase profit by 50% a manager could decrease supply cost by 10% or $5,000. b. To increase profit by 50% a manager could increase sales by 25% or $25,000 c. decreasing supply cost by $5,000 or increasing sales by $25,000 to $125,000 would produce a 50% increase in profit d. It is not possible to increase profit by 50%.