a)
To determine: Material cost and percentage change in material cost using supply chain strategy for a profit of $25,000 in Company KF.
Introduction:
a)
Answer to Problem 3P
Using supply chain strategy 5.71% decrease in material cost is required to yield profit of $25,000.
Explanation of Solution
Given information:
Particulars | Amount | Percentage |
Sales | $250,000 | 100% |
Cost of supply chain purchases | $175,000 | 70% |
Production cost | $30,000 | 12% |
Fixed cost | $30,000 | 12% |
Profit | $15,000 | 6% |
Supply chain strategy:
Supply chain strategy | Amount | Percentage increase or decrease |
Sales | $250,000 | |
Material cost | $165,000 | -5.71 |
Production cost | $30,000 | 12% |
Fixed cost | $30,000 | 12% |
Profit | $25,000 | 66.67% |
Calculation of percentage changes using supply chain strategy:
Company KF is expected to increase its profit from $15,000 to $25,000.
Percentage of material cost for profit of $25,000:
For an expected profit for $25,000 from $10,000, the estimated percentage of material cost is 66%.
Material cost for an expected profit $25,000:
Percentage change in material cost for an expected profit $25,000:
The material cost decreased by 5.71%.
Change in profit percentage:
The percentage change in profit, when profit rises from $15,000 to $25,000 is 66.67%.
Hence, by using supply chain strategy 5.71% decrease in material cost is required to yield profit of $25,000.
b)
To determine: Sales and percentage change in sales using sales strategy for a profit of $25,000 in Company KF.
b)
Answer to Problem 3P
By using sales strategy 22.22% increase in sales is required to yield profit of $25,000.
Explanation of Solution
Given information:
Particulars | Amount | Percentage |
Sales | $250,000 | 100% |
Cost of supply chain purchases | $175,000 | 70% |
Production cost | $30,000 | 12% |
Fixed cost | $30,000 | 12% |
Profit | $15,000 | 6% |
Sales Strategy:
Sales strategy | Amount | Percentage increase or decrease |
Sales | $175,000 | 75% |
Material cost | $105,000 (70%) | 75% |
Production cost | $35,000(12%) | 75% |
Fixed cost | $10,000 | 0% |
Profit | $25,000 | 150% |
Calculation of percentage changes using sales strategy:
Calculate the percentage increase in the sales:
Hence, the sales increase to $305,555 when profit is $25,000.
Change in material cost:
For an estimated profit of $25,000, the sales changes to $305,555 and hence due to change in sales there is also change in material cost. Material cost is 70% of sales. Therefore for sales of $305,555, the material cost is $213,889.
Percentage change in material cost:
The percentage change in material cost is 22.22% when the sales increase to $305,555.
Change in production cost:
For an estimated profit of $25,000, the sales changes to $305,555 and hence due to change in sales there is also change in production cost. Production cost is 12% of sales. Therefore for sales of $305,555, the production cost is $36,666.
Percentage change in production cost:
The percentage change in production cost is 22.22% when the sales increase to $305,555.
Change in sales percentage:
The percentage change in sales, when profit rises from $15,000 to $25,000 is 22.22%.
Hence, by using sales strategy 22.22% increase in sales is required to yield profit of $25,000.
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Chapter 11 Solutions
Principles Of Operations Management
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