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If the cost of manufacturing (direct labor and materials) is 50% of sales and profit is 15% of sales, what would the profit percentage be if the direct costs of manufacturing were reduced from 50% to 47%

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Parrain

Answer: 18%

Explanation:

Assume sales is $100.

Profit is 15% of sales so profit is:

= 15% * 100

= $15

Cost is 50%:

= 50% * 100

= $50

If costs were reduced to 47%, it would become:

= 47% * 100

= $47

This means that $3 has been freed up.

This $3 will go to the profit because the other costs are not dependent on production and so are considered fixed.

With $3 going to profit, the profit becomes:

= 3 + 15

= $18

Profit percentage:

= 18 / 100

= 18%

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