IDIS 424 Purchasing Application in Distribution

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IDIS 424 Purchasing Application in Distribution Fall 2018

Homework Assignment 1 Solution

1. Product flow, process flow, cash flow, and information flow. (Please remember this. It

will show up on your exams for sure)

2. Consider the case of “PERFECTA Industrial Supply”, a large electrical distributor. Top

management has set the goal to double their net profit before tax for the next period.

Consider the current financial data:

Please help PERFECTA analyze the following strategies:

Strategy 1: the company will increase sales. Find the required sales increase % in order to increase the

net profit before tax by $30.

Let x be the increased sales. Then x – 600 – 10%x – 250 = 80, x = 1033. Thus, increase sales by 33, percent

increase is 33/1000 =3.3%

Strategy 2: the company will work with suppliers to decrease COGS, assuming that the sales $ remains

the same. Find the required decrease % on COGS in order to increase the net profit before tax by $30.

Need to decrease COGS by $30. Hence, percent decrease is 30/600 = 5%.

improvements in profitability. This is exactly “Leverage effect”!

(10% sales)

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