Use the information below to answer the following question(s):
A retailer operating a network of home improvement stores has annual sales of $800 million,
annual cost of goods and materials purchased of $500 million,and net income of $125 million.
-What should the new annual sales be to have the same effect on the bottom line as a 15-percent reduction in the cost of goods and materials purchased,other things remaining unchanged?
A)$500 million
B)$800.75 million
C)$1.280 billion
D)$1.5 billion

Question

Quizplus · Accepted Answer

A 15% reduction in the cost of goods and materials would save $75 million (15% of $500 million). To achieve the same increase in net income through sales, the retailer would need to increase sales by $480 million (since the profit margin is $125 million / $800 million = 15.625%). Thus, new sales would be $800 million + $480 million = $1.280 billion.

Use the Information Below to Answer the Following Question(s)