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Profit Planning

“…a series of prescribed steps to be taken to ensure that a desired profit will be made.” Profit planning must precede other activities.

McGraw-Hill/Irwin

© 2006 The McGraw-Hill Companies, Inc. All rights reserved

Revenue Cash Accounts Receivable .

Types of Expenses Fixed Variable .

Expenses Materials Salaries Utilities Depreciation Rent Building Services Insurance Interest Office & Supplies Sales Promotion Taxes & Licenses Maintenance Delivery Miscellaneous .

Profit (Income) “…the difference between revenue earned and expenses incurred.” .

Initial Steps In Profit Planning 1) Establish Goal 2) Determine Expected Sales Volume 4) Estimate Expenses 5) Determine Estimated Profit 6) Compare Estimate With Goal .

Action Steps In Profit Planning 1) 2) List alternatives to improve profits Determine how expenses & profits vary with volume Analyze alternatives vis-à-vis profit Select an alternative & implement 3) 4) .

c. Analyze Alternatives Select/Implement Plan . a.000 $700. How Do Expenses Vary With Volume Sales Expenses $364.000 $364. b. a.700 $ -0$ 40.000 $530.000 $490. b. 5. c.300  Volume Profit 4.000 $ 81.000 $530.000 $618.Action Steps In Profit Plan 1.000 $700.000 $364.

000 .000 -$12. d.Planning For Profit       a.000 490.000 530. Establish Profit Goal Determine Sales Volume Estimate Expenses Determine Profit Estimate Compare Profit To Goal List Alternatives Change Sales Volume Decrease Expenses Add Products/Services Subcontract $ 52. b. c.000 40.

Breakeven Chart .

Control “…the process of ensuring that organizational goals are achieved. All rights reserved .” McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies. Inc.

Control Process 1. Take Corrective Action . Deviations Excessive? 5. Setup Standards 2. Planned 4. Actual vs. Measure Performance 3.

Set Standards • Units Consumer/Produced • Price Paid/Charged.Price – Standard Hours Per Unit – Miles Per Gallon • Requires Per Unit – Intuition – Past Performance – Measurement – Comparison – Communication Keith Brofsky/Getty Images .

Effective Controls Timely Cost Effective Accurate Measurable Indicate Cause/Effect Responsibility of one Acceptable PhotoDisc Imaging/Getty Images .