Profitability Managment

• Cost Control - Fixed and Variable Costs?

  
  

  Fixed: not dependent on level of operating activity, same every cycle

  Eg, rent

  Variable: changes in proportion to operating activity

  Eg. materials, labour

  A business can lower Variable Costs by:

  • Supplier Rationalisation: reducing number of suppliers, and negotiating discount through bulk orders (economies of scale), achieving cheaper prices
  • Staff Reduction: Use of Capital goods to replace labour costs. Eg. self service
  • Staff Replacement: Replacing full time with casual/part time staff
  • JIT Inventory
• Cost Control - Cost Centres

  Costs directly attributed to certain departments are called Cost Centres.

  The main function of Cost Centres is to track expenses. Monitoring expenses through cost centres allows for greater control of total costs, as well as easier cost reduction strategies
• Expense Minimisation

  Developing and integrating a business-wide emphasis on cutting costs

  Strategies Include:

  • Waste Minimisation
  • JIT
  • Use of Capital Goods to reduce labour
• Revenue Control -Sales Objective

  Using Marketing to choose objective (eg mass marketing, niche marketing) set to maximise sales and revenue

  Objectives need to be a number where sales cover fixed and variable costs and make a profit
• revenue control - Sales Mix

  Analysis of what products bring in most revenue and have demand, and putting a focus to sell these through marketing strategies to maximise profit
• revenue control - Pricing Policy

  Choosing what pricing method (market based, competition based) etc will result in most revenue brought in