Amalgamated Fenderdenter's sales are $10 million. The company spends $3.5 million for purchase of direct materials and $2.5 million for direct labor; overhead is $3.5 million and profit is $500,00. Direct labor and direct material vary with sales, but overhead does not. The company wants to double its profit.

| B C D E F % of Sales 1 GIVEN von Dollars Revenue (sales) $10,000,000 Cost of Goods Sold Direct Material $3,500,000 Direct Labor $2,500,000 Overhead $3,500,000 Total Cost of Goods Sold $9,500,000 Gross Profit $500,000 35% 25% 35% 95% 5% 10 FILL IN THE BLANKS 12 A) To double profit, how much should the firm increase sales? 13 Note: the figure in the blank should represent the total dollar amount % of Dollars Sales Revenue (sales) Cost of Goods Sold Direct Material $0 35% Direct Labor 25% Overhead $3,500,000 35% Total Cost of Goods Sold $3,500,000 35% Gross Profit ($3,500,000) -35% 22 B) To double profit, by how much should the firm decrease material costs? % of Sales Dollars Revenue (sales) $10,000,000 Cost of Goods Sold Direct Materials Direct Labor $2,500,000 Overhead $3,500,000 Total Cost of Goods Sold $6,000,000 Gross Profit $4,000,000 0% 25% 35% 60% 40% 32 C) To double profit, by how much should the firm decrease labor costs? % of Sales 35% Dollars Revenue (sales) $10,000,000 Cost of Goods Sold Direct Material $3,500,000 Direct Labor Overhead $3,500,000 Total Cost of Goods Sold $7,000,000 Gross Profit $3,000,000 0% 35% 70% 30% 42 Conclusion 43 What does this tell you about the importance of Production & Inventory Management