A company with a group of grocery stores spends 70 percent of their sales in the supply chain, and has a net profit margin of 4 percent. Operations department working with IT just initiated an Internet-based inventory management program that is expected to save the group $500,000 per year. This $500,000 goes directly to profit. Use Table 11.4 in textbook

1. Using Table 11.4 how much additional sales does this company need to make to obtain the equivalent of a $1.00 cost saving in their supply-chain?
2. Determine the increase in sales that would be necessary, to obtain a $500,000 increase in profits after cost of goods sold.
3. If they are thinking of hiring a new Humber grad for the operations department at $35,000 per year, how much in saving should this new grad try to find in the operations department to justify their salary?
4. If the company had hired a marketing grad at $30,000 per year by how much must this new hire increase sales for the year to justify their salary?

Hau Lee Furniture Inc. spends 50% of its sales dollar in the supply chain and has a net profit of 4%. Hau wants to know how many dollars of sales are equivalent to supply chain savings of $1. APPROACH Table 11.4 (given Hau's assumptions) can be used to make the analysis. SOLUTION Table 11.4 indicates that every $1 Hau can save in the supply chain results in the same profit that would be generated by $3.70 in sales. 6 Percentage of Sales Spent in the Supply Chain Percentage Net Profit of Firm 30% 40% 50% 60% 70% 80% 90% 2 $2.78 $3.23 $3.85 $4.76 $6.25 $9.09 $16.67 4 $2.70 $3.13 $3.70 $4.55 $5.88 $8.33 $14.29 $2.63 $3.03 $3.57 $4.35 $5.56 $7.69 $12.50 8 $2.56 $2.94 $3.45 $4.17 $5.26 $7.14 $11.11 10 $2.50 $2.86 $3.33 $4.00 $5.00 $6.67 $10.00 aThe required increase in sales assumes that 50% of the costs other than purchases are variable and that half the remaining costs (less profit) are fixed. Therefore, at sales of $100 (50% purchases and 2% margin), $50 are purchases, $24 are other variable costs, $24 are fixed costs, and $2 are profit. Increasing sales by $3.85 yields the following: Purchases at 50% $ 51.93 (50% of $103.85) Other Variable Costs 24.92 (24% of $103.85) Fixed Cost 24.00 (fixed) Profit 3.00 (from $2 to $3 profit) $103.85 Through $3.85 of additional sales, we have increased profit by $1, from $2 to $3. The same increase in margin could have been obtained by reducing supply chain costs by $1. Hau Lee Furniture Inc. spends 50% of its sales dollar in the supply chain and has a net profit of 4%. Hau wants to know how many dollars of sales are equivalent to supply chain savings of $1. APPROACH Table 11.4 (given Hau's assumptions) can be used to make the analysis. SOLUTION Table 11.4 indicates that every $1 Hau can save in the supply chain results in the same profit that would be generated by $3.70 in sales. 6 Percentage of Sales Spent in the Supply Chain Percentage Net Profit of Firm 30% 40% 50% 60% 70% 80% 90% 2 $2.78 $3.23 $3.85 $4.76 $6.25 $9.09 $16.67 4 $2.70 $3.13 $3.70 $4.55 $5.88 $8.33 $14.29 $2.63 $3.03 $3.57 $4.35 $5.56 $7.69 $12.50 8 $2.56 $2.94 $3.45 $4.17 $5.26 $7.14 $11.11 10 $2.50 $2.86 $3.33 $4.00 $5.00 $6.67 $10.00 aThe required increase in sales assumes that 50% of the costs other than purchases are variable and that half the remaining costs (less profit) are fixed. Therefore, at sales of $100 (50% purchases and 2% margin), $50 are purchases, $24 are other variable costs, $24 are fixed costs, and $2 are profit. Increasing sales by $3.85 yields the following: Purchases at 50% $ 51.93 (50% of $103.85) Other Variable Costs 24.92 (24% of $103.85) Fixed Cost 24.00 (fixed) Profit 3.00 (from $2 to $3 profit) $103.85 Through $3.85 of additional sales, we have increased profit by $1, from $2 to $3. The same increase in margin could have been obtained by reducing supply chain costs by $1