Profitability management - financial strategy

Question 1

What falls under profitability management

Answer 1

CE - MFV

Cost centers (cost controls)
Expendse minimisation (cost controls)
Marketing objectives - revenue controls
Fixed (cost controls)
Vairable (cost controls)

Question 2

Cost controls - cost centres

Answer 2

a part of the business whrre costs can be identified and controlled

example: office administration or marketing

Question 3

Strategies - cost centres

Answer 3

• cut spending proportionate to the revenue of the cost centre
• Analyse cost centres and allocate more capital to the highest-earning areas
• Analyse one person to control and analyse cost centres

Question 4

Expendse minimisation - cost control

Answer 4

the concept of minimising expendses within a business to help increase cashflow

Question 5

strategies for expendse minimisation - cost control

Answer 5

• cut casual staff during quite periods
• minimise job share (more non-monetary benefits are at a cost to the business)
• purchase in bulk
• take advantage of discounts for early payment

Question 6

considerations for expense minimisation

Answer 6

reduction in marketing costs = may impact the businesses ability to generate sales

Downsizing staff = may impact the ability to provide high quality customer service

Relocating could be further away from the warehouse which means higher transport costs

Question 7

Marketing objectives - revenue control

Answer 7

aimed at maximising revuenue recived by the business through setting marketing objectives

Question 8

Strategies for marketing objectives

Answer 8

Promotion - a new advertising campaign to encourage customers to purchase products

Price - adjusting the pricing strategy to loss leaders

Product - release a new product range

Place - broaden distribution channels - intensive distribution using the internet

Question 9

Fixed cost control

Answer 9

A fixed cost is a cost to a business that do not change regardless of the level of output

Examples: salaries, rent, leases and insurance

Question 10

Fixed cost control strategies

Answer 10

• negotiate leasing
• consider comparisons for insurance
• ensure that employees are performing to their best standard

Question 11

Fixed cost control considerations

Answer 11

-May impact on the product quality; specifically if machinery is sourced at a lower price/quality

• Difficult to change fixed costs as the business may have already bought the asset or entered into a financial agreement

Question 12

Variable cost controls

Answer 12

Refer to costs that change according to the level of output

Examples: wages, electricity, bills, materials

Question 13

Variable cost control strategies

Answer 13

• hire permanent staff instead of casual (don’t have to pay more eg hourly wage)
• Use energy-efficient lightbulbs
• Try different energy suppliers eg solar power
• source cheaper supplies
• Buy in bulk to receive discounts

Question 14

Variable cost control considerations

Answer 14

-May impact on quality of output (particularly for inventory and labour)

-Labour should only be reduced in times when production/demand is decreased, so to not decrease customer service

-Sourcing cheaper labour may create issues with human resources stakeholders such as unions and employees