ENHANCE PROFITABILITY THROUGH RATIO BUDGETING
16 May 2009 Leave a Comment
in Uncategorized Tags: continuous process improvement, cost reduction, profitability
Every time you see a financial statement, it shows the relationship of costs to sales. When you deduct the costs of production from sales, you have the gross profit margin, which when expressed as a percentage, gives you the amount of money per unit ofsales left after production expenses which can be used to pay overhead costs.
If the gross margin is 40% (that is .40 cents per dollar of sales) then there are two things we can do to improve profitability.
One is to lower the cost of sales and therby raise the GPM. In a firm billing $1mm per year, 1% reuction saves $10,000 over the year. Thaht is worth pursuing, but do you know how to do it?
