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Hau Lee Furniture, Inc., spends 50% of its sales dollars in the supply chain and finds its current profit of $21,000 inadequate. The bank is insisting on an improved profit picture prior to approval of a loan for some new equipment. Hau would like to improve the profit line to $26,000 so he can obtain the bank's approval for the loan. What percentage improvement is needed in the supply chain strategy for profit to improve to $26000

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Answer: 7.1%

Explanation:

The cost of materials needs to reduce for the profit to increase. If the profit is to go from $21,000 to $26,000, the material cost would need to decrease by:

= 26,000 - 21,000

= $5,000

The current material cost is $70,000 so a decrease of $5,000 in percentage terms would be:

= 5,000 / 70,000 * 100%

= 7.1%

The new material cost would be:

= 70,000 - 5,000

= $65,000

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