Ron Mesia, Circuit City Supply Chain Manager finds his profit at $15,000 as shows below, he consider that it is inadequate for expanding his business.
Bank of America is insisting on an improved profit picture prior to approval of a loan for some new equipment. Ron would like to improve the profit line to $25,000 so he can obtain the bank’s approval for the loan.
What percentage improvement is needed in a Cost of Material Strategy for the profit to improve to $25,000? Sales, Other Production Cost, and Fixed Cost will remain the same.
What percentage improvement is needed in Sales for the profit to improve to $25,000? Cost of Material, Other Production Cost, and Fixed Cost will remain the same.
|
Current Situation |
% Distribution |
Cost of Material Startegy |
Percent Increase or Decrease |
Sales Strategy |
Percent Increase or Decrease |
|
|
Sales |
$250,000 |
100% |
250,000 |
0% |
||
|
Cost of material (supply chain) |
$175,000 |
70% |
175,000 |
0% |
||
|
Other production cost |
$30,000 |
12% |
30,000 |
0% |
30,000 |
0% |
|
Fixed cost |
$30,000 |
12% |
30,000 |
0% |
30,000 |
0% |
|
Profit |
$15,000 |
6% |
25,000 |
67% |
25,000 |
67% |
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