Suppose the firm in the above Strategic Profit Model undertakes a supply chain change. It decides to no longer hire transportation service from third parties and instead buys its own trucks, hires drivers, etc. It improves its service level to customers because it can deliver more quickly than the third parties could. The result is a 10% increase in sales. Assume cost of goods sold increases by 10% also because more units are sold. Obviously, some expenses go up and others go down but the net change in total expenses is an increase of $2,000. The new approach requires totally new asset investment of $5,000.Assume other variables do not change. What is the firms new profit margin?

SALE S GROSS MARGIN 300,000 STRATEGIC PROFIT MODEL 100,000 COST OF GOODS 200,000 PROFIT PROFIT MARGIN VARIABLE EXPENSES 25.000 SALES TOTAL EXPENSES 60,000 FIXED EXPENSES RETURN ON ASSETS 35,000 INVENTORY 10,000 SALES ASSET TURNOVER CURRENT ASSETS ACCOUNTS REC. 30,000 10,000 TOTAL ASSETS FIXEDASSETS OTHER CURRENT 105,000 10,000