Net profit margin, Operation Management

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?


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?


d. Which of these two ventures should the company choose?


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)?

Posted Date: 2/14/2013 5:38:27 AM | Location : United States

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