Net profit margin:
1. Transportation firm now spends 60 percent of the sales revenue it receives in the supply chain, and has a net profit margin of 6 percent. The company can invest $100,000 in one of two ventures to increase its profits.
a. How many dollars of additional sales would be required to equal $1 saved through the supply chain?
Answer: $4.35
b. One venture is advertising-based, and is expected to increase revenues (sales) by $600,000 (after spending the $100,000). How much will this increase profits?
Answer:
c. The other venture applies the money in supply-chain efficiencies that are expected to save $200,000 (again, after spending the $100,000). How much will this increase profits?
Answer:
d. Which of these two ventures should the company choose?
Answer:
e. If it expects business to improve next year such that it would only spend 30% of its sales revenue in the supply chain (profit margin remains at 6%) should it change its decision in Part d)?