1. A small company has $5,000,000 in (annual) revenue, spends 47% of its revenues on purchases, and has a net profit margin of 9.75%. They would like to increase their profits and they are looking at focusing in one of two directions. First, they think they can save 1.00% on their purchase expenses. Or second, they can focus on increasing sales.
a. By what percentage would they have to increase sales in order to equal a 1.00% savings to purchasing expenses? (Write your answer as a percentage and display your answer to two decimal places.)
2. A marketing company prides itself on its sales prowess and is looking for ways to increase profits. Given the company culture, the president calls for a 10% increase in sales to meet the profitability goals. The company currently has revenues of $9,000,000 (annually), spends 64% of its revenues on purchases, and has a net profit margin of 6.25%.
You are a modest purchasing intern working for this company and you want to show the president that it may be easier to reach the profitability goals by lowering the purchasing expenses (while holding sales constant, that is, no need to increase sales by 10%).
a. If the company is able to reach its goal of increasing sales by 10%, by how much would its revenue increase? (Display your answer as a whole number.)
b. If the company is able to reach its goal of increasing sales by 10%, by how many dollars would its profit increase? (Display your answer as a whole number.)
c. By what percentage would they have to decrease purchasing expenses to equal the bottom-line benefits of a 10% increase to revenues? (Write your answer as a percentage and display your answer to two decimal places.)