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    Question 11.4

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    Kim
    Kamal Fatehl, production manager at Kennesaw Manufacturing, needs to increase their $15,000 profit to $25,000 in order to obtain a bank loan for new equipment. To do so, they could decrease material costs by 5.7% to lower expenses. Alternatively, increasing sales by 22.2% to $305,556 with proportional increases in supply chain and production costs would also yield a $25,000 profit. Either approach would satisfy the bank's requirement for an improved financial picture.

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    Question 11.4

    Uploaded by

    Kim
    48 views2 pages
    Kamal Fatehl, production manager at Kennesaw Manufacturing, needs to increase their $15,000 profit to $25,000 in order to obtain a bank loan for new equipment. To do so, they could decrease material costs by 5.7% to lower expenses. Alternatively, increasing sales by 22.2% to $305,556 with proportional increases in supply chain and production costs would also yield a $25,000 profit. Either approach would satisfy the bank's requirement for an improved financial picture.

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    Kamal Fatehl, production manager at Kennesaw Manufacturing, needs to increase their $15,000 profit to $25,000 in order to obtain a bank loan for new equipment. To do so, they could decrease material costs by 5.7% to lower expenses. Alternatively, increasing sales by 22.2% to $305,556 with proportional increases in supply chain and production costs would also yield a $25,000 profit. Either approach would satisfy the bank's requirement for an improved financial picture.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    48 views2 pages

    Question 11.4

    Uploaded by

    Kim
    Kamal Fatehl, production manager at Kennesaw Manufacturing, needs to increase their $15,000 profit to $25,000 in order to obtain a bank loan for new equipment. To do so, they could decrease material costs by 5.7% to lower expenses. Alternatively, increasing sales by 22.2% to $305,556 with proportional increases in supply chain and production costs would also yield a $25,000 profit. Either approach would satisfy the bank's requirement for an improved financial picture.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Question 11.

    4: Kamal Fatehl, production manager of Kennesaw Manufacturing, finds


    his profit at $15,000 (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 new equipment. Kamal would like to improve the profit line to $25,000
    so he can obtain the bank’s approval for the loan.

    Current % of Sales Supply chain Percentages


    situations strategy Increase/Decrease

    Sales $250,000 100% $250,000 05

    Cost of supply $175,000 70% $165,000 -5.7%


    chain purchases

    Other production $30,000 12% $30,000 12%


    costs

    Fixed costs $30,000 12% $30,000 12%

    Profit $15,000 6% $25,000 66.7%

    a) To decrease cost material = 10,000/175,000 x 100% = 5.7 %


    There will be a need of 5.7% material cost decrease
    Cost of material to attain $25,000 profit
    175000 – (5.7 /100 x 175000)=$ 165,025
    Costs increase required to attract $25,000 profit will be
    10,000/15,000 x 100 %=66.7 %
    b) To increase the sales for profit to improve to $25,000
    Let X be the sales for profit to improve to $25,000:
    Sales−Cost of supply chain purchases−Production costs−¿ costs=25,000
    X −70 %( X)−12% ( X )−30,000=25,000
    X =305,555.56 305,556
    ➜ Sales = $ 305,556
    Cost of supply chain purchases: 70% of Sales = $213,889.2
    Production cost = 12% of Sales = $36,666.72

    Current % of Sales Sales Percentages


    situations strategy Change

    Sales $250,000 100% $305,556 +22.2224%

    Cost of supply $175,000 70% $213,889.2 +22.2224%


    chain purchases

    Other production $30,000 12% $36,666.72 +22.2224%

    This study source was downloaded by 100000867126861 from CourseHero.com on 05-14-2023 21:39:41 GMT -05:00

    https://www.coursehero.com/file/92700372/Question-114docx/
    costs

    Fixed costs $30,000 12% $30,000 12%

    Profit $15,000 6% $25,000 66.7%

    Percentages change:
    Sales: (305,556−250,000)/250,000=22.2224 %
    Cost of supply chain purchases: (213,889.2 – 175,000)/175,000=22.2224 %
    Production costs: (36,666.72 – 30,000)/30,000=22.2224 %
    ➜ So, increasing all of three things above by 22.2224% to reach $25,000
    for profit.

    This study source was downloaded by 100000867126861 from CourseHero.com on 05-14-2023 21:39:41 GMT -05:00

    https://www.coursehero.com/file/92700372/Question-114docx/
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