How much should the firm decrease material costs, Operation Management

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How much should the firm decrease material costs

Assignment:

Problem

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; over head is $3.5 million and profit is $500,000. Direct labor and direct material vary directly with sales, but overhead does not. The company wants to double its profit.

(a) By how much should the firm increase sales?

(b) By how much should the firm decrease material costs?

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