finance exam- profitability management Flashcards
what are cost controls
(departments within a business that are responsible for all costs associated in their department)
what are the three types of profitability management strats
cost controls, expense minimisation and revenue controls
how do management implement cost controls
- Comparison of costs with budgets, standards, and previous periods ensure that costs are minimised and profits maximised
- A financial manager can take the total cost of making and supplying a good and calculate the percentage contribution of each cost centre.
o Cost centres contribute to profit indirectly =often target of downsizing - Hence, management must ensure costs are managed and below budget
how is expense minimisation achieved, thro which 2 strats
EXPENSE BUDGETS AND POLICIES
Means to reduce to the minimum possible. Using an expense budget would be extremely helpful
An expense budget is to list the main activities in a unit and allocate a dollar amount to each activity.
- When expenses are minimised, and volume and production remain the same, the business increases its competitive position.
- Profits can be weakened if expenses of a business are high, consuming valuable resources within a business.
Guidelines and policies are set in place for the staff as well
what are revenue controls
the ability of a business to determine an acceptable level of revenue to maximise profits. hence a business must have clear ideas and policies in regard to its marketing objectives.
what are the three strats to revenue control
-marketing (sales) objectives
-changes to the sales mix
-pricing strategies
what is marketing objectives and how r they achieved
A cost-volume-profit analysis can determine the level of revenue sufficient for a business to cover its fixed and variable costs to break even.
why are changes to sales mix important and how is it achieved
Each of the products by the business generate different profit margins. Businesses should control this by maintaining a clear focus of which products generate the largest revenue for the business and eliminating the products that generate the least profit.
By conducting market research, the business may also choose to introduce new products that will help to increase sales based upon customer needs.
why are pricing strats important and which strat allows it to be achieved
Cost-based pricing involves calculating the cost of the product, and then adding a percentage mark-up to determine price. A price will need to be determined that will ensure that market share is maintained or improved.
* Control revenues by using a cost-based pricing method
