Question

If Purchases were 45% of sales and other expenses were 45% of sales, what would be the increase in profit if, through better purchasing, the cost of purchases was reduced to 43% of sales?

Answer 1

Answer:

20%

Explanation:

In first case when Purchases were 45% of sales and other expenses were 45% of sales, the profit is = Sales - Expense - Purchase =

Profit = x - 0.45x - 0.45x

Profit = 0.1x

In the next case the profit is = x-0.45x - 0.43x

Profit = 0.12x  

Hence, the increase in profit = (0.12-0.1)*100/0.1x

(0.1x) = 2

x = 2 / 0.1

x = 20%

Hence, the increase in profit = 20%