Evaluation of Cost Control Techniques and Profitability in Manufacturing Firm

The profitability ration in a financial analysis is the ability of the organization to generate a profit. This ratio looks at areas such as net income, revenue, gross profit, earnings before taxes and interest and operating profit to name a few. Profitability shows the bottom line numbers for a company and is the goal that most organizations strive for. Ratios examined were gross profit margin and net profit margins

Profit is the money that a business earns in revenue, minus investments, and the cost of salaries.

In business there are certain factors that have to be evaluated before a company can see if a profit has been made. To even get to the point where a profit will be made there has to be a product that is sold whether it is a tangible or an intangible product. There has to be something that the business is selling in order to make that profit. The amount of profit that is attained is the outcome of the total revenue minus the total cost. This will then show the business what the remaining profit is. Business is like a puzzle, all the pieces have to fit and work together to have the puzzle complete. In business things have to work together or it won’t work and all the hard work that was put in to making

Cost has traditionally being a major influence on all business as all businesses desire to achieve maximum efficiency as it is a vital factor for businesses in order to reach the ultimate goal and success. Businesses sees cost as the key value to success and aims to become as much cost efficient as possible, by implementing a cost-leadership style approach to the operations variable cost or fixed cost ,while maintain the expected profit margin, business is able to gain a competitive advantage over their competitors in their target market. This is called cost-based competition. By determining the break-even point and applying cost saving strategies, to reducing cost, businesses who apply cost-based competition in their operations is able to maximize the profits and lead business to success.

For instance, a business that uses the variable costing approach allows the management to analyze the actual production costs, and this allows controlling costs since one can identify the differences between the actual and budgeted amounts. Additionally, through variable costing the management focuses on controlling costs to establish better cost control practices. It is easier to control the variable production costs compared to fixed production costs, and the appropriate level of management then makes

First, we need to know what the profit is. Profits are also an important signal to other providers of corporate finance. Banks, suppliers, and other lenders are more likely to provide financing to companies that can prove their earnings, and repay their debts at maturity. It is a very important concept especially for start-ups, it is the core index reflecting the business performance of enterprises and the basis for the benefit distribution of stakeholders. It is the basic source of enterprise sustainable development,①（Sisay A) 2005.

In order for a company to succeed and be successful, it is very important for the company to understand the difference between profit and cost of goods. There are costing tools that can help a business figure out what the cost of product is during the manufacturing process. These tools are beneficial for a company to figure out how much profit can be made. These tools take the cost of manufacturing the unit and subtract it from the sale price of the product. Having this information, the profit per unit, is very beneficial for a company to know which products they should produce more heavily, or which ones to eliminate. I want to discuss two costing methods that are beneficial to a

Profitability - A positive effect of companies generating operational profits is the ability for companies to expand and grow their operations. Companies often reinvest a certain amount of profits earned from current operations into new business opportunities or expanding current operations to increase business output.

Cost allocation is a very crucial procedure for many companies- not just production companies, but also in companies that provide service. Cost allocation has one purpose and that is to enable the determination of the cost of a product per unit in production companies and the cost of a provided service in service companies. Therefore, methods for cost allocation directly affect the service or product profitability assessment and at the same time sway segment and company profitability. The main problem is the choice of the cost allocation accounting approach. There are certain methods for cost allocation that do not apply the same to every company. If the method for

Product or Service Cost Control: we can define cost control as the practice of managing business expenses in order to reduce them. The business identifies which are the costs and evaluate whether if they are reasonable and affordable. Therefore, the Company can look for ways to diminish costs through different methods or at least restrict their rate of growth. Businesses use cost control methods to monitor, evaluate, and ultimately enhance the efficiency of specific areas, such as departments, divisions related to the Company’s product or service that it sells.

In cost leadership a firm will set out to become a low cost producer in its industry. A low cost producer must find and exploit all sources of cost advantage. If a firm can achieve and sustain overall cost leadership then it will become an above average performer within its industry. The sources of cost advantage are varied and depend upon the

Profitability ratios refer to the relative measure to what an actual created profit. Through these ratios the company is allowed to see how profitable the company. In addition it can serve as an examination of the overall performance of the company’s operations and how do these compare to past performances or other companies. The ratios in which accounting measures the profitability of a company are Profit Margin, Price over Earnings, Return on Equity and Return on

Based on the real world functioning of businesses, every organization that deals with the process of manufacturing of certain products operates in accordance with the main principle of maximizing its profits. During the performance of daily activities, many business managers face a series of questions related to planning, control and decision making. In order to give answers to all these questions, an additional analysis needs to be considered. It is very important for managers to plan carefully how they are going to generate sufficient money to pay down costs and, in this way to result with a profit. As managers are interested in having the adequate information about the influence that certain actions might have on the profitability of the business, "Cost Volume and Profit" analysis plays a significant role by being a potential tool in facilitating the process of making the right decisions regarding planning and control in order to add value to the company. (Trifan and Anton, 2011). To further illustrate the essential impact that CVP analysis has on management authorities in making better decisions, I will refer to and analyze the case of the Hampshire Company which follows as below.

Cost management has been playing a vital role in the modern days. The company has to adapt to a good costing system to run the business most efficiently & effectively. If there is lack of effective cost control techniques in an organization it gives rise to number of problems such as lack of effective decision making, difficulty in price determination, ineffective utilization of resources, lack of proper cost control etc., this affects all the interested groups, such as the company itself, shareholders, creditors, employees, public etc. So, understanding the cost will give lot of advantages like fixing product price, fixing margin, fixing profitable product mix & various management

I declare that it is an original work and has not been submitted so far in part or in full, for award of any other degree or diploma of any University or Institution.