MANAGING THE OPERATION FOR PROFIT For any business to remain open, supply customers, purchase supplies and...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
MANAGING THE OPERATION FOR PROFIT For any business to remain open, supply customers, purchase supplies and materials, pay taxes, maintain employment, give to charitable causes, provide benefits, and so forth, that business must make a profit. Making a profit means that business makes enough revenue to cover all costs, including taxes, with some left over. This refers to Net Income or Net Income After Taxes (NIAT). Gross profit or gross margin (GP /GM) is profit based solely on the costs of producing a product or service. Generally, GP is calculated after subtracting cost of goods sold (COGS) from gross revenue (total revenue minus sales discounts and sales returns). Thus, Gross profit tells the firm if it is feasible to produce a product or service based solely on its revenue and the direct costs of producing that product or service. COGS does not include overhead. Overhead includes, but is not limited to, utilities, management, IT, Sales and Marketing, and a whole host of costs associated with running the entire business that cannot be directly attributed to a single product or service. These costs are generally "spread" over all the products / services. In other words, there are activities and supplies directly associated with producing a product or service (COGS) and things that generate cost and are necessary to the firm but cannot easily be attributed to any single product or service (overhead). In the table below (also attached are Practice Operations Product Profitability.xlxs and Practice Operations Product Profitability.pdf files), analyze the data for the following: (NOTE: in the spreadsheet you can modify sales price and the costs for each area of the organization. It is highly suggested you do two things: first, use it to play with the data to better understand how to answer the questions below. Second, after every change or set of changes it is suggested you revert back to the original data. However, two copies of the spreadsheet are included in the workbook in case you make changes and cannot recover the original data.) 1. In Practice Operations (PO), what costs are directly associated with a product? 2. Which are the top 5 products, based on Gross Profit / Margin (GP or GM)? 3. The GP figure is calculated as follows: (Avg. Sales Price - Operating Costs)/Avg Sales Price A. Example, Chiffon Dresses: ($50-$27.87)/$50)x100%-44.3% B. Look at Hunting Pants (the most profitable product), Chiffon Dresses, and White Socks (the least profitable product). Obviously the higher the sales price and the lower the cost, the more profitable a product will be. I. What are the major factors in each of these product's profitability? II. If we look at the product profitability solely as a function of sales price and operating cost, and if we assume the operation could take action accordingly, what aspects should the firm try in order to improve profitability? A. Which action might be the most difficult? B. What supply chain functions might be involved and how? Please assist with these questions only: 1. What price would White Socks have to be to achieve break even gross profit (GP=0%) 2. What does the table tell us about profitability with respect to materials? 3. What does the table tell us about profitability with respect to operating cost? 4. Why is it important to have a Gross Margin that is as high as possible? (Hint: what does Gross Margin NOT include?) 1. If you have taken screenshots of your results after shipping products and/or examined your financial results you will see many of these costs appear 5. Where are holding costs of material captured in PO: COGS or overhead? 6. Where are holding costs of products captured in PO: COGS or overhead? 7. Why would a business have a target or minimum gross profit margin? 8. Why would a business still accept products with profit margins less than target or minimum desired gross profit margin? MANAGING THE OPERATION FOR PROFIT For any business to remain open, supply customers, purchase supplies and materials, pay taxes, maintain employment, give to charitable causes, provide benefits, and so forth, that business must make a profit. Making a profit means that business makes enough revenue to cover all costs, including taxes, with some left over. This refers to Net Income or Net Income After Taxes (NIAT). Gross profit or gross margin (GP /GM) is profit based solely on the costs of producing a product or service. Generally, GP is calculated after subtracting cost of goods sold (COGS) from gross revenue (total revenue minus sales discounts and sales returns). Thus, Gross profit tells the firm if it is feasible to produce a product or service based solely on its revenue and the direct costs of producing that product or service. COGS does not include overhead. Overhead includes, but is not limited to, utilities, management, IT, Sales and Marketing, and a whole host of costs associated with running the entire business that cannot be directly attributed to a single product or service. These costs are generally "spread" over all the products / services. In other words, there are activities and supplies directly associated with producing a product or service (COGS) and things that generate cost and are necessary to the firm but cannot easily be attributed to any single product or service (overhead). In the table below (also attached are Practice Operations Product Profitability.xlxs and Practice Operations Product Profitability.pdf files), analyze the data for the following: (NOTE: in the spreadsheet you can modify sales price and the costs for each area of the organization. It is highly suggested you do two things: first, use it to play with the data to better understand how to answer the questions below. Second, after every change or set of changes it is suggested you revert back to the original data. However, two copies of the spreadsheet are included in the workbook in case you make changes and cannot recover the original data.) 1. In Practice Operations (PO), what costs are directly associated with a product? 2. Which are the top 5 products, based on Gross Profit / Margin (GP or GM)? 3. The GP figure is calculated as follows: (Avg. Sales Price - Operating Costs)/Avg Sales Price A. Example, Chiffon Dresses: ($50-$27.87)/$50)x100%-44.3% B. Look at Hunting Pants (the most profitable product), Chiffon Dresses, and White Socks (the least profitable product). Obviously the higher the sales price and the lower the cost, the more profitable a product will be. I. What are the major factors in each of these product's profitability? II. If we look at the product profitability solely as a function of sales price and operating cost, and if we assume the operation could take action accordingly, what aspects should the firm try in order to improve profitability? A. Which action might be the most difficult? B. What supply chain functions might be involved and how? Please assist with these questions only: 1. What price would White Socks have to be to achieve break even gross profit (GP=0%) 2. What does the table tell us about profitability with respect to materials? 3. What does the table tell us about profitability with respect to operating cost? 4. Why is it important to have a Gross Margin that is as high as possible? (Hint: what does Gross Margin NOT include?) 1. If you have taken screenshots of your results after shipping products and/or examined your financial results you will see many of these costs appear 5. Where are holding costs of material captured in PO: COGS or overhead? 6. Where are holding costs of products captured in PO: COGS or overhead? 7. Why would a business have a target or minimum gross profit margin? 8. Why would a business still accept products with profit margins less than target or minimum desired gross profit margin?
Expert Answer:
Related Book For
Dynamic Business Law The Essentials
ISBN: 978-0073524979
2nd edition
Authors: Nancy Kubasek, Neil Browne, Daniel Herron
Posted Date:
Students also viewed these finance questions
-
Based solely on your observations of the cash flow statements for 2012 to 2015, write a brief explanation that describes the main issues and activities which Flash Drive s management team appear to...
-
Assume that you must make a presentation to the marketing staff explaining the difference between product and period costs. Your supervisor tells you the marketing staff would also like clarification...
-
Assume that you must make a presentation to a client explaining the difference between prime and conversion costs. The client makes and sells 200,000 cookies per week. The client tells you that her...
-
Being employed as a casual barista in a local caf with a flourishing catering business called 'Brown's Caf' , where you are supervised by the caf owner, Jessica Williams. The company employs 20...
-
a. Over what output range does Sues Surfboards enjoy the benefits of increased specialization and division of labor? b. Over what output range does the firm experience diminishing marginal product of...
-
Omega Corporation is involved in a lawsuit brought by a competitor for patent infringement. The competitor is asking $14 million actual damages for lost profits and unspecified punitive damages. The...
-
This appeal involves the validity of a will executed in contravention of an earlier contract to make mutual wills. A husband and wife signed a contract to make mutual wills and then executed those...
-
David R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a self-employed consultant, specializing in retail management and...
-
Market Dynamics (10 Points) Between 1980 and 1990, the number of employed women grew sharply but the number of women employed as secretaries actually fell. There are two theories as to why this...
-
Bumble Bee Co. had taxable income of $7,000, MACRS depreciation of $5,000, book depreciation of $2,000, and accrued warranty expense of $400 on the books although no warranty work was performed. What...
-
Learning your own unique pattern of interests, motivation, satisfaction, and meaning is an important first step in career development. Think about these questions. 1. What classes fascinate and...
-
Rationalize the (i) 3-252 3+22 following: - (11) 1+ 2 2-52
-
what roles did Langston Hughes have on The evolution of black African American poetry Explain
-
Discuss the role of virtualization technologies in modern operating systems, including hypervisors, containerization, and para-virtualization, and their implications for resource utilization,...
-
Why operating expenses for a business should be low or high? Why would operating expenses decrease? How do you calculate less operating expenses?
-
An electromagnetic radiation has a wavelength 694 nm, what is the frequency of this radiation?
-
Global technology firm that specializes in developing and marketing software solutions. Our organization's capabilities lie in its ability to develop cutting-edge software solutions that cater to...
-
Identify Thank You mission, strategy and core competencies. Identify strategy changes that have taken place at Thank You since its founding in 2008. Your answer must in text references and must be...
-
Explain what determines whether a contract is covered by the UCC.
-
Explain the steps of a criminal prosecution.
-
List five intentional torts, and explain the elements needed to prove each.
-
Which depends on gravityweight or mass?
-
Where would your weight be greateron Earth or on the Moon? Where would your mass be greater?
-
What two main ideas of Aristotle did Galileo discredit?
Study smarter with the SolutionInn App