Sales = 1.33%
Therefore,
33%
sales have to increase to provide the same increase in the profits.
3.
On the average, a company has a work-in-process lead time of 12 weeks and an annual
cost of goods sold of $25 million. Assuming that the company works 50 weeks a year:
a)
What is the dollar value of the work-in-process?
b)
If the lead time could be reduced to 9 weeks and the annual cost of carrying
inventory was 18% of the work-in-process inventory value, what would be the
annual savings?
Solution:
Given Data:
Work-in=process = 12 Weeks
Annual Cost of Goods sold = $25 million
Working Weeks = 50
a)
Cost of goods sold per week = $25,000,000/year ÷ 50 weeks/year
= $500,000 per week
WIP value at 12 weeks lead time = 12 × $500,000/week
= $6,000,000
b)
WIP value at 9 weeks lead time = 9 weeks x $ 500,000/week
= $4,500,000
Reduction in WIP = $6,600,000 - $4,500,000
= $1,500,000
Annual Savings = $1,500,000 × (18 ÷ 100)
=
$270,000
Hence, the annual savings of the firm will be
$270,000
4.
If the opening inventory is 700 units, demand is 1250 units, and production is 900 units,
what will be the ending inventory?
Solution:
Given Data:
Opening Inventory = 700 units
Demand (Total Forecast) = 1250 units
Back orders = 0
Total Production = 900 units
As,
Total Production = Demand + Back orders + Ending Inventory - Opening Inventory
Ending Inventory = (Total Production + Opening Inventory) - (Demand + Back orders)
= (900 + 700) - (1250+0)
= 1600 - 1250