Problem 11.3 EQuestion Help Kamal Fatehl production manager of Kennesa Manufactu
ID: 375730 • Letter: P
Question
Problem 11.3 EQuestion Help Kamal Fatehl production manager of Kennesa Manufacturing, finds his profit at $31,200 (as shown in the statement below) inadequate for expanding his business. The bank is insisting on an improved profit picture prior to approval of a loan for some naw equipment Kamal would like to improve profit line to $41200 so he can obtain the bank's approval for the loan. Sales Cost of supply chain purchases Other production costs Fixed costs Profit 260,000 169,000 28,600 31,200 31,200 %Of sales 100% 65% 11% 12% 12% a) What percentage improvament is neaded in a supply chain strategy for profit to improve to $41,200? What is the cost of material with a 341200 prof? A decrease o 5 92 % m su p chain cos s s rec u red o eld·profil a 54 200 or al new cus of Supp chan purchases ars 59000 Er er our re panee y he percentage decrease o are dec na ace and enter aur response k r the new u ga chain cos az a whoie number) b) What percentage irmprovement is needed in a sales strategy lor profit to improve to $41,200? What must sales be lor pra to improve to $41,2007 An increass of% in sales is required to yleld a profit of $41.200, for a new new level of sales of Enter your rssponse for the percentage incresse to one decimal place and enter your response for the new sales as a whole number)Explanation / Answer
Answer to problem 11.3.b :
Following are to be noted :
Since, Fixed cost remains unchanged, For a profit to increase by “delta”, ( Sales – Cost of supply chain purchase – Other production cost ) also to improve by “delta”
Cost of supply chain purchase = 0.65 x Sales
Other production cost = 0.11 x Sales
Now,
Target increase in profit = $41200 - $31200 = $10,000
Let corresponding increase in sales value = S
Therefore,
Corresponding increase in supply chain purchase = 0.65.S
Corresponding increase in production cost = 0.11.S
Therefore ,
Increase in ( Sales – Cost of supply chain purchase – Other production cost ) = $10,000
Or, S – 0.65.S – 0.11.S = 10,000
Or, 0.24.S = 10,000
Or, S = 1000/0.24 = $41666.66
Hence % increase in sales = $41666.66 / 260,000 x 100 = 16.02 % ( 16 %)
New level of sales = 260,000 + 41,666.66 = $301666.66 ( $301667 rounded to nearest whole number )
AN INCREASE OF 16.% IN SALES IS REQUIRED TO YILED A PRIFT OF $41200 FOR A NEW LEVEL OF SALES OF $ 301667
AN INCREASE OF 16.% IN SALES IS REQUIRED TO YILED A PRIFT OF $41200 FOR A NEW LEVEL OF SALES OF $ 301667