Principles Of Operations Management
Principles Of Operations Management
11th Edition
ISBN: 9780135173930
Author: RENDER, Barry, HEIZER, Jay, Munson, Chuck
Publisher: Pearson,
Question
Book Icon
Chapter 11, Problem 3P

a)

Summary Introduction

To determine: Material cost and percentage change in material cost using supply chain strategy for a profit of $25,000 in Company KF.

Introduction: Supply chain management is one of the important elements of a business which impacts business product development. With expanding business in global conditions, supply chain activities can impact on the cost effectiveness of the business.

a)

Expert Solution
Check Mark

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:

Profit=[Sales(Sales×PercentageMaterial cost)(Sales×PercentageProduction cost)Fixed cost]$25,000=[$250,000($250,000×PercentageMaterial)($250,000×12100)$30,000]$25,000=$250,000($250,000×PercentageMaterial)$60,000$25,000=$190,000($250,000×PercentageMaterial)

($250,000×PercentageMaterial)=$190,000$25,000PercentageMaterial=$165,000$250,000=66%

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:

Sales=$250,000Materialcost=66%ofsales=66100×250,000=$165,000

Percentage change in material cost for an expected profit $25,000:

Change in percentage=MaterialcostcurrentMaterialcostinitialMaterialcostinitial×100=$165,000$175,000$175,000×100=5.71%

The material cost decreased by 5.71%.

Change in profit percentage:

Change in profit percentage=ProfitCurrentProfitinitalProfitInitial×100=$25,000$15,000$15,000×100=$10,000$15,000×100=66.67%

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)

Summary Introduction

To determine: Sales and percentage change in sales using sales strategy for a profit of $25,000 in Company KF.

b)

Expert Solution
Check Mark

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:

Profit=Sales(Sales×PercentageMaterial cost)(Sales×PercentageProduction cost)Fixed cost$25,000=Sales(Sales×0.70)(Sales×0.12)$30,000$25,000=0.18Sales$30,0000.18Sales=$30,000+$25,000

Sales=$55,0000.18=$305,555

Hence, the sales increase to $305,555 when profit is $25,000.

Change in material cost:

Materialcostcurrent=70%Sales=70100×$305,555=$213,889

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:

Change in percentage= Material costCurrentMaterial costInitialMaterial costInitial=$213,889$175,000$175,000×100=$38,889$175,000×100=22.22%

The percentage change in material cost is 22.22% when the sales increase to $305,555.

Change in production cost:

Productioncostcurrent=12%Sales=12100×$305,555=$36,666

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:

Change in percentage= Production costCurrentProduction costInitialProduction costInitial=$36,666$30,000$30,000×100=$6,666$20,000×100=22.22%

The percentage change in production cost is 22.22% when the sales increase to $305,555.

Change in sales percentage:

Change in sales percentage=SalesCurrentSalesinitalSalesInitial=$305,555$250,000$250,000=$55,555$250,000=22.22%

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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Main Challenges at TechInnovateStrategic DirectionTechInnovate's board of directors is pushing for a more aggressive expansion into emerging markets, particularly in Africaand Southeast Asia. However, there's internal disagreement about whether to focus on these new markets or consolidatetheir position in existing ones. Sarah Chen favors rapid expansion, while some senior executives advocate for a morecautious approach.Ethical ConcernsThe company's AI algorithms have come under scrutiny for potential biases, particularly in facial recognition technology.There are concerns that these biases disproportionately affect minority groups. Some employees have voiced ethicalconcerns about selling this technology to law enforcement agencies without addressing these issues.Team Leadership and DiversityTechInnovate's leadership team is predominantly male and Western, despite its global presence. There's growing pressurefrom employees and some board members to diversify the leadership team to…
Sarah Anderson, the Marketing Manager at Exeter Township's Cultural Center, is conducting research on the attendance history for cultural events in the area over the past ten years. The following data has been collected on the number of attendees who registered for events at the cultural center.   Year Number of Attendees 1 700 2 248 3 633 4 458 5 1410 6 1588 7 1629 8 1301 9 1455 10 1989 You have been hired as a consultant to assist in implementing a forecasting system that utilizes various forecasting techniques to predict attendance for Year 11.   a) Calculate the Three-Period Simple Moving Average b) Calculate the Three-Period Weighted Moving Average (weights: 50%, 30%, and 20%; use 50% for the most recent period, 30% for the next most recent, and 20% for the oldest) c) Apply Exponential Smoothing with the smoothing constant alpha = 0.2. d) Perform a Simple Linear Regression analysis and provide the adjusted…
​Ruby-Star Incorporated is considering two different vendors for one of its​ top-selling products which has an average weekly demand of 70 units and is valued at ​$90 per unit. Inbound shipments from vendor 1 will average 390 units with an average lead time​ (including ordering delays and transit​ time) of 4 weeks. Inbound shipments from vendor 2 will average 490 units with an average lead time of 2 weeksweeks. ​Ruby-Star operates 52 weeks per​ year; it carries a 4​-week supply of inventory as safety stock and no anticipation inventory. Part 2 a. The average aggregate inventory value of the product if​ Ruby-Star used vendor 1 exclusively is ​$enter your response here.

Chapter 11 Solutions

Principles Of Operations Management

Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Purchasing and Supply Chain Management
Operations Management
ISBN:9781285869681
Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:Cengage Learning
Text book image
Marketing
Marketing
ISBN:9780357033791
Author:Pride, William M
Publisher:South Western Educational Publishing
Text book image
MARKETING 2018
Marketing
ISBN:9780357033753
Author:Pride
Publisher:CENGAGE L
Text book image
Principles of Management
Management
ISBN:9780998625768
Author:OpenStax
Publisher:OpenStax College
Text book image
Practical Management Science
Operations Management
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:Cengage,
Text book image
Foundations of Business (MindTap Course List)
Marketing
ISBN:9781337386920
Author:William M. Pride, Robert J. Hughes, Jack R. Kapoor
Publisher:Cengage Learning