Asked by Jenna Grace Milionis on May 08, 2024
Verified
A transportation firm spends 60% of its sales in the supply chain, and has a net profit margin of 6%. The company is about to invest $100,000 in one of two ventures. One venture is advertising-based, and is expected to increase revenues (sales) by $600,000 (after spending the $100,000). The other venture applies the money in supply-chain efficiencies that are expected to save $200,000 (again, after spending the $100,000). Which of these two ventures offers the larger increase in profit to the firm? Use Table 11.3, reproduced below. 
Net Profit Margin
A financial metric that calculates the percentage of net profits earned with respect to sales revenue, indicating the efficiency of a company in converting sales into actual profits.
Supply-Chain Efficiencies
The optimization of activities in the supply chain to minimize costs and waste while maximizing speed and quality.
Increase In Profit
The growth in net earnings resulting from operations, often driven by increased sales, cost reduction, or improved productivity.
- Investigate the fiscal consequences of supply chain economization versus sales growth.
Verified Answer
TB
Teddy BogbaMay 15, 2024
Final Answer :
The relevant entry in Table 11.3, 60% of sales and 6% net profit, is $4.35. If $200,000 can be saved, the equivalent value of increased sales is $200,000 × 4.35 = $870,000. In other words, $200,000 in supply-chain savings and $870,000 in increased sales yield the same increase in profit. Since the expected increase in sales is only $600,000, the better use of the $100,000 is to pursue the supply-chain efficiencies.
Learning Objectives
- Investigate the fiscal consequences of supply chain economization versus sales growth.