Revenue, cost and profit

Question 1

Revenue objectives

Answer 1

• Targeting a specific growth in sales revenue (% or value)
• Sales maximisation (revenue or volume)
• Market share through exceeding the sales of a competitor

Question 2

Marketing mix

Answer 2

• Increasing the sales volume through lowering prices or non-price methods such as advertising and improving their process
• If they know their PED they can increase sales revenue (price elastic = lower price, price inelastic = increase price)

Question 3

Cost objectives

Answer 3

Cost minimisation - lowest possible unit costs.
The benefits of this include:
- Maintain price and have a higher profit margin
- Reduce price to increase volume. Revenue as well if the product is price elastic .

Question 4

Examples of cost objectives

Answer 4

• Purchasing economies of scale
• Reduce wage cost per unit by improving productivity
• Lowering levels of wastage (lean production)
• Relocating the business to the ‘least-cost-site’
• Marketing economies of scale by reducing the CPT (Cost per thousand) of advertising
• Technological economies of scale through JIT and new technology to reduce the variable cost per unit

Question 5

Profit objectives

Answer 5

• Targeting a specific growth in profit (% or value)
• Profit maximisation (gross, operating, profit for year)
• Exceeding the profit of a competitor

Question 6

Cash flow objectives

Answer 6

• Reduce bank borrowings to a target level
• Minimise the time taken by customers who pay on credit to settle outstanding invoices
• Extend the period taken to pay suppliers to maximum permitted period
• building a buffer balance of cash
• Minimising the amounts paid out in interest charges by reducing the reliance on an overdraft or long term borrowing
• Reducing the seasonal swings in cash flow