Any company is opened for the purpose of making profit and earning money. However, this concept itself is quite vague, so it should be considered with various sides to separate each value from each other.
A good manager must have a good understanding of the terms and be able to independently calculate the profitability of the enterprise. Initially, such work may seem difficult, but in reality this is not entirely true.
What is profit?
Profit or, in other words, gross income is the main source Money any enterprise. It enters the company’s assets in the form of cash and non-cash funds through:
- sales of goods;
- provision of services.
All material costs that are paid from these funds are not included in the concept of profit. Any company should strive to obtain the largest volume of it.
Gross income is an estimate. Even an enterprise that can only cover expenses with its own profits will be considered unprofitable. In this case, the very meaning of the existence of such an organization is lost.
This situation gives rise to only two solutions:
- carrying out fundamental reforms;
- closure of the enterprise.
In addition, we should not forget that profits provide profitability to the state through direct taxation.
Income tax is widespread throughout the world and differs only in rates for various categories of taxpayers.
If we talk about income in general, then they perform certain functions:
- They act as a criterion for assessing the activities of a particular company (the higher the profit, the better the company operates in its segment).
- Act as a development incentive (any entrepreneur strives to increase profits, which means to work better and with greater efficiency).
- Determine the difference between spending and earning.
With high and stable profits, the enterprise, as a rule, develops: new equipment is purchased, new specialists are hired, areas are expanded, and new technologies are introduced. And this ensures the growth of the state’s economy.
Main types of profit
Let's talk about different types of profit. These concepts must be clearly separated.
Gross
The most important indicator of a company's development is gross profit. It is according to its value that the work efficiency is calculated.
Gross profit is the difference between the amount received from the sale of goods and services and their cost.
It is calculated using the formula: VP=Vyr-Seb, where:
- VP - gross profit;
- Seb - the cost of goods and services.
For example, consider data from the financial report of one of the enterprises. They are shown in the table below.
We calculate gross profit: 220,000 - 75,000 = 145,000 rub.
Profit analysis is very important question. Any large company interested in its development in the market carefully studies all types of profit and considers their dynamics as the main indicator of stability.
Marginal
Another concept of profit lies behind the word “marginal”. This income, in essence, is the difference between the profit from the sale of goods and services of the company (excluding value added tax) minus variable costs. The calculation formula is as follows:
MP=Vyr-PZ
- MP - marginal profit;
- Vyr — revenue from the sale of goods and services;
- PV - variable costs.
Accounting in Russia does not allow for the allocation of variable costs to a certain volume of production. That is why technological costs are taken for them.
An example of the calculation is as follows: if it is known that the cost was 40,000 rubles, and the revenue was 120,000, then the marginal profit = 120,000 - 40,000. Total is 80,000 rubles.
If everything is very clear with revenue, then the concept of variable costs should be clarified. So, they mean the following expenses:
- payment of wages to employees;
- funds spent on raw materials for production;
- payment for electricity, gas and water;
- other expenses.
As production expands, marginal profit increases and variable costs decrease. This concept is often called the coverage contribution, since it is a source for:
- formation of new profit;
- coatings fixed costs for the work of the company.
The size of the marginal profit directly affects the amount of net income of the company.
operating room
This type of profit is not typical for accounting and economic accounting at Russian enterprises, however, having come to us from Western analytics, this concept has become stronger today. Let's figure out what exactly is meant by this definition.
Economists are increasingly encountering the concept of EBIT. It denotes operating income, and is literally translated as profit before interest and taxes are paid. The indicator is determined using the following formula:
OP=VP-KR-UR-OtherR+PVyp+OtherD
- OP - operating profit;
- VP - gross profit;
- KR - commercial expenses;
- UR - management costs;
- ProchR - other expenses;
- ПВйп — interest payable;
- ProchD - other income.
Let's look at an example of a calculation based on a table with row codes. Based on it, it is very convenient to calculate the results.
| Index | Code | 2015 |
|---|---|---|
| Gross profit | 2100 | 200 000 |
| Management costs | 2220 | 30 000 |
| Commercial costs | 2210 | 11 000 |
| Other expenses | 2350 | 5 000 |
| Other income | 2340 | 3 000 |
| Interest payable | 2330 | 17 000 |
Let's perform a simple calculation using the formula: 200,000 - 11,000 - 30,000 - 5000 + 17,000 + 3000 = 174,000 rubles.
The definition of operating income is very difficult for us to understand, but if you understand it, you can calculate the effectiveness of any type of company activity.
Below we will look at the term balance sheet profit, which is directly connected to the operating room. If balance sheet income is known, then the formula for calculating operating income will be simple:
OP=BP+PVyp, where:
- OP - operating profit;
- BP is book profit;
- ПВйп — interest payable.
The calculations here are directly related to the interest payable, and if there is none, then it is advisable to calculate the balance sheet income.
Balance sheet
The balance sheet profit indicator is extremely important when paying taxes. It is very similar to the operating room. This is the type of income that is received before taxes are paid.
Balance sheet income is an indicator of a company's performance and financial results. The formula is:
BP=Vyr-Seb+ProchR+ProchD
- BP - balance sheet profit;
- Vyr - revenue;
- Seb - all costs of production costs;
- ProchR - other expenses;
- ProchD - other income.
As an example, consider financial statements with line numbers according to the table. And we will solve the problem using the existing formula.
We calculate: 200,000 - 60,000 + 5000 + 1000 = 146,000 rubles.
This indicator is reflected in the reporting. If calculated incorrectly, it can not only distort the results, but also cause fines to be imposed.
Clean
The definition of net profit is quite simple. It reflects income received after paying taxes and other expenses. Calculation formula:
PE=Vyr-Seb-UR-KR-ProchR-Tax, where:
- PE - net profit;
- Vyr — revenue from the sale of goods and services;
- Seb - cost of goods and services;
- KR - commercial expenses;
- UR - management costs;
- Other — other expenses.
You can take another formula as a basis, based on profit values:
PE=FinP+VP+OP-Tax, where:
- PE is pure profit;
- FinP is financial profit;
- OP - operating profit;
- VP - gross profit.
Let's look at an example:
| Index | Code | 2015 |
|---|---|---|
| Revenue | 2110 | 200 000 |
| Cost price | 2120 | 60 000 |
| Commercial costs | 2210 | 11000 |
| Management costs | 2220 | 13000 |
| Other income | 2340 | 5 000 |
| Other expenses | 2350 | 1 000 |
| Balance sheet profit | 2300 | 146 000 |
| Income tax | 2410 | 15100 |
We calculate: 200,000 - 60,000 - 13,000 - 11,000 - 1000 - 15100 = 99,900 rubles.
According to the concept, the amount of net profit is the balance in the company’s account, which will be an indicator of its efficient work. The higher this indicator, the more significant the growth. If this indicator falls over time, this indicates a decrease in efficiency.
Net profit is analyzed by two popular methods:
- Statistical. According to this analysis you can make a forecast of changes in the profitability indicator.
- Factorial. Essentially, it identifies the most important factors affecting net profit growth.
The ratio of types of profit
The direct relationship between different types of profit is obvious. Even on the basis simple formulas calculations, you can see that often one indicator is correlated with another. This is no coincidence.
When conducting accounting losses and profits are reflected in the document a certain shape"Income statement". This information should always be on hand. The calculation of one type of income may depend on the estimate of another. For example, income from the sale of goods is directly related to gross profit.
How to calculate profit from sales?
Return on sales is calculated based on profit. It is very important to understand what percentage profit a company receives by spending certain amounts. The formula used for this is:
Pp=VP-UR-KR, where:
- Pp - profit as a percentage;
- VP - gross profit;
- KR - commercial expenses;
- UR - management costs.
Below is a table based on the example of the sale of one unit of goods for the billing period:
To determine the amount of net profit, you need to subtract tax deductions and other expenses from the amount of profit from sales.
Factors on which the amount of profit depends
It is economically justified to divide all factors affecting profit into two main groups:
- external;
- internal.
They are considered separately, since they have little connection with each other. Let's talk about external factors.
Among them are:
- the general situation on the market, the level of supply and demand (in other words, market conditions);
- influence of government policy (tax rates, regulation of tariffs, fines, provision of benefits, etc.);
- natural conditions;
- market price level;
- norms of depreciation expenses.
As for internal factors, they are divided into production and non-production factors. The first ones are those that directly relate to objects labor activity and financial resources. And the latter depend on the activities of supply and sales, as well as the parameters of working conditions.
Among the internal factors are:
- competitiveness of goods and services on the market;
- labor productivity;
- quality of management;
- planning efficiency;
- level of labor organization and management;
- rational use of resources.
Some factors affect profitability directly, while others indirectly.
Analysis of the results obtained
Economic analysis in manufacturing is very important. Even if a company is just getting on its feet, it is necessary to carefully study the profits made and, if possible, make forecasts.
All this is the work of an accountant. Analysis of the activities of any company is accompanied by a tax report for each period. In this case, the enterprise should be considered as a separate entity. Another thing is how well the market was initially analyzed based on:
- cost of goods;
- its value on the market;
- influence of competition, etc.
The quality indicator, which is income, directly depends on this. How the company will develop in the future depends on the competence of management and economists. Analysis allows you to find the right solutions for any development of the situation.
Any enterprise operates with the goal of generating income. Knowledge on this topic is never superfluous. Today the market is developing rapidly, a huge number of factors can influence this. This is why it is so important to analyze and always keep your finger on the pulse.
Sales volume is a clear proof of how successful a company is, since sales volume refers to a certain amount of money that has been credited to the company's accounts for goods sold over a certain period of time.
It is worth saying that sales volume is extremely necessary to calculate and analyze for the reason that you can see how much the number of sales has increased, or, on the contrary, how much it has decreased. This will allow each owner of his business to monitor its success and make timely decisions in the event that performance plummets.
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Simple Arithmetic
It should be noted that there is a generally accepted formula for determining target sales volume:
S = (FC+EBIT)/MPed
It is deciphered as follows:
FC is conditional fixed costs, which are of a production nature;
EBIT - represents profit before interest is deducted from it;
MPed is the marginal profit, which is calculated per unit of production, which in turn is calculated as the increase in the selling price per unit of goods (p) over variable costs per unit of goods (v): MPed = p - v
So, thanks to this formula, you can easily solve all your questions, and calculate and analyze everything necessary nuances with indescribable ease.
In this matter, an important issue is the ability to calculate gross sales volume. It should be said that the calculation of gross income occurs over a certain period of time, and is also based on the structure of trade turnover, which operates within certain standards of trade markups, including those regulated by the state.
The calculation of gross income for the planned period is based on the projected structure of trade turnover and the current norms of trade markups, including those regulated by the state for socially important goods. Gross income is calculated using the TN formula.
As for net volume, its formula is very simple to calculate, and it is as follows:
ROS = (Net Profit x 100%) / Net Sales
After the questions with the formulas are resolved, it is necessary to move on to the next question, namely, what is the break-even point. It is worth saying that the break-even point, which is often referred to as the profitability threshold (more about profitability of sales), implies that this is an economic indicator that characterizes a certain sales volume, where revenue from the sale of goods equals the costs of producing these goods .
As for the break-even analysis, it is extremely necessary in order to be able to analyze the success of the enterprise, as well as assess its level. Therefore, break-even analysis solves the following problems:
- analyzes commercial enterprises, in particular analyzes trends and decisions, according to a system such as “costs - production volume - profit”;
- is engaged state enterprises, where it presents financial indicators and analyzes higher structures;
- analyzes the work of potential contractors and shareholders of the enterprise, with a view to the financial stability of the enterprise.
Break even
An important role is also played by the break-even point, which stands for the volume of sales of already produced products, where the revenue managed to cover production costs.
You also need to know what the break-even and critical volume of sales are, which must be made regularly in order to control the financial turnover of the enterprise. In order to be able to make a calculation, you must own the following formula:
Break-even point = (Fixed costs / (Sales revenue - Variable costs)) x Sales revenue.
For those who are interested in the question of how strong an enterprise is, whether it is afraid of a crisis and other financial nuances, you need to know that there is a calculation of the margin of financial strength. Its essence lies in the fact that it is the difference between the existing volume of output and the volume of output present at the break-even point.
Thanks to this, you can immediately understand how much and in what period of time the sales volume may decrease, and what needs to be done to avoid losses.
There is a special formula that can help calculate all the necessary algorithms. It is as follows:
Pd = (B -Tbd)/B * 100%
So, ZPd is the very margin of financial strength
B - represents sales revenue.
Tbd is the break-even point, expressed in monetary terms.
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In its activities, enterprise management has to make various management decisions regarding, for example, the selling price of goods, planning sales volumes, increasing or, conversely, saving on certain types of expenses. These decisions are made based on an analysis of the ratios of costs, volume and profit, otherwise CVP analysis. CVP analysis allows you to understand the goals of the analysis and shows “how important it is to understand the behavior of costs, that is, the response of costs to various influences" to assess the consequences of certain management decisions.
When using this method, the following assumptions on which CVP analysis is based must be taken into account:
- All costs can be considered either fixed or variable;
- Behavior total costs and revenue is strictly defined and linear within the scope of relevance;
- Fixed costs do not change with changes in production volume within the area of relevance;
- Variable costs are directly proportional to the volume within the area of relevance;
- Variable costs per unit of production (unit variable costs) are constant;
- The unit sales price does not change;
- Prices for materials and services used in production do not change;
- Labor productivity does not change;
- There are no structural changes;
- Production volume is the only factor influencing changes in the costs and income of an enterprise;
- Sales volume equals production volume (i.e. there is no change in inventory levels during the period under review);
- The range of products in an enterprise where a number of different goods are produced or several types of services are provided is constant. The variable costs and unit selling price used in the analysis are a weighted average of the costs of various units of production and the prices of related goods and services.
Break even.
In order to study the relationship between changes in sales volume, expenses and net profit, a break-even analysis is carried out, which is sometimes interpreted as an analysis of the critical point (break-even point or profitability threshold). The critical value of sales volume is the one at which the enterprise has costs equal to the revenue from the sale of all products, that is, it still does not have a profit, but no longer has a loss.
The cost-volume-profit relationship can be expressed graphically or using formulas. Break-even charts show the volume of total fixed costs, total variable costs, total costs (the sum of total fixed and total variable costs) and total income for all levels of activity (sales volumes) of the enterprise at a given sales price. If unit price, costs, efficiency, or other conditions change, the model must be revised.
Graph for analyzing the behavior of costs, profits and sales volume
On the graph, the break-even point is defined as the point of intersection of the direct total costs and direct sales revenue.
For management, the break-even point is an important reference point in the analysis, since it shows the level of sales below which the company will incur losses. For this reason, it can be considered as the minimum acceptable level of sales of products or services.
The cost-volume-profit relationship can also be expressed using formulas.
To calculate the critical point, use equation methods And marginal profit.
Equation method is based on the calculation of profit (meaning the economic concept of profit) according to the following formula:
P = VR - Per.Z - Post.Z,
Where VR- revenue from product sales;
VR= Sales volume Selling price per unit of production;
Lane Z- variable costs for the same sales volume;
Lane Z= Sales Volume Variable Costs per Unit;
Post.Z- all fixed costs of an enterprise for a certain period of time.
If the company is located in profitability threshold(at the critical point) then the profit is zero and we get the following equality:
VR = Per.Z + Constant.Z.
Sales volume * Selling price per unit = Sales volume * Variable costs per unit + Cons.
Transforming the formula and taking the sales volume as the critical (threshold) sales volume, we obtain the following formula:
Fixed costs Critical point = _____________________________________________________ in sales units Unit price. - Variable costs per unit
The critical point shows how far revenue can fall before there is a loss.
Another way to determine the critical point is using the concept of contribution margin (gross margin).
The contribution margin method is based on the following formula:
Marginal = Revenue from - Variable costs profit from sales of products for the same volume of production
The critical sales volume can be defined as the sales volume at which marginal profit is equal to fixed costs. The critical point equation for the marginal approach in terms of units of production will be as follows:
Critical = Fixed costs ________________________________ point in sales units Contribution profit per unit
Critical point analysis can be used as a basis for assessing the profitability of an enterprise. For various alternative production plans, the corresponding amount of possible profit (in an economic sense) can be calculated. In this case, the following relationship is used:
BP = Per.Z + Post.Z + Profit (target value)
Thus, the volume of sales that would ensure the target profit can be calculated using the following formula:
Target sales volume Fixed costs + Target profit in units = ________________________________________________ Unit price - Variable costs per unit
When using the margin approach, this equation will look like:
Target Sales Fixed Costs + Target Profit in Units = ______________________________ Contribution Margin per Unit
Thus, with the marginal approach, management receives the following information:
- Are fixed costs recoverable?
- on the amount of marginal profit from each type of product.
Contribution Margin Analysis underlies management decisions related to price revisions, changes in assortment, setting bonuses, as well as when conducting marketing operations.
Sensitivity Analysis is based on the use of the “what will happen if” technique changes one or more factors affecting the amount of sales, costs or profits. Based on the analysis, you can obtain data on the financial result for a given change certain parameters. The sensitivity analysis tool is the margin of safety (margin of financial strength), that is, the amount of revenue that is beyond the critical point. Its amount shows to what extent revenue can fall so that there is no loss.
Illustrative example.
Production and sales plan for pneumatic tools of JSC "Instrument".
| Number of product units, pcs. | Per unit of production, rub. | Total, thousand rubles | |
| Sales | 12 000 | 250 | 3 000 |
| Expenses | |||
| Variable costs | |||
| Raw materials | 12 000 | 95 | 1 140 |
| Electricity (power) | 12 000 | 45 | 540 |
| Salaries of production workers | 12 000 | 20 | 240 |
| Total variable costs | 12 000 | 160 | 1 920 |
| Fixed costs | |||
| General shop expenses | 445 | ||
| Factory overhead | 431 | ||
| Total fixed costs | 876 | ||
| Total costs | 2 796 | ||
| Profit | 12 000 | 17 | 204 |
How many units of products must JSC Instrument sell to cover all costs?
Breaking Point in Sales Units = 876,000 / (250 - 160) = 9,734 units Task 1.
A company manager is considering the problem of producing a new type of product. It is expected to be in high demand. It is assumed that the cost of producing a unit of output will be as follows: direct material costs - $18.50; direct labor costs - $4.25; auxiliary materials- $1.10; commercial expenses - $2.80; other expenses - $1.95. It is also assumed that depreciation of buildings and equipment will cost $36,000 for the year; advertising expenses will be $45,000; other fixed expenses - $11,400. The company plans to sell the products for $55.00.
Required:
- Calculate the volume of products that the company must sell in order to
- reach the profitability threshold;
- make a profit of $70,224.
- reach the profitability threshold;
- Calculate the volume of products that the company must sell to make a profit of $139,520, assuming that advertising costs increase by $40,000.
- Assuming sales volume of 10,000 units, calculate the price at which the product must be sold to make a profit of $131,600.11
- The marketing manager believes that sales for the year can reach 15,000 units. How much additional can the company spend on advertising if the unit price is $52.00, variable costs cannot be reduced, and the company wants to make a profit of $251,000 on sales of 15,000 units?
Task 2.
Company M has recently entered a very competitive market. Efforts are being made to capture market share. The price of the products sold by the company is $5 per unit, which is much lower than the prices of most competitors. The company had variable costs of $4.50 per unit and fixed costs for the year of $600,000.
Required:
- Let's assume that the company could sell 1,000,000 units in a year. What was your profit for the year?
- How will profit change if the price increases by $1 per unit and at the same time the planned sales volume decreases by 10,000 units?
- What price must be set for the product to make a profit of $30,000?
- How will profit change with a 5% increase in sales revenue relative to the threshold value?
- What financial results would be achieved by reducing fixed costs to $550,000 at the planned sales volume?
Task 3.
The President of the Corporation, which produces tape decks, promised the company's workers to increase wages by 10% next year. It is necessary to prepare data to justify the production plan for next year. You have the following data for the reporting year:
- Selling price per unit $80
Variable costs per unit:
Material $30
Labor $12
General production $6
Total variable costs $48
Annual sales volume 5000 units
Fixed costs per year $51000
- Determine how much the sales price needs to be increased to cover a 10% increase in wages and maintain a 40% contribution margin?
- How many decks must be sold to get the same amount of profit as in the current year, provided that the selling price remains at $80, and wage will increase by 10%?
- How will it affect financial results? additional expenses$5,000 in advertising?
Task 4.
Factory soft drinks produces only one type of drink.
Required:
- Determine the break-even level.
- What is the profit at the current sales volume?
- What should be the reduction in variable costs in order to get 1 million in profit?
- A core component supplier has announced a price increase. This will increase the plant's materials costs by 20%. What will be the impact on profits?
- In addition to orders for 500,000 bottles, the plant received a one-time rush order for 200,000 bottles. Additional quantities of core components can only be purchased at a premium to the regular price. What should be the maximum price a business could pay for additional raw materials without negatively impacting profits?
Making management decisions.
1. Planning the range of products (goods) to be sold.
If the company produces different kinds products, then assortment planning is sufficient challenging task. If homogeneous products are produced, then the solution is similar to that discussed in the appendix.
Example. The company produces and sells products of four types: P1, P2, P3, P4. The prices are respectively: 38.13; 25, 58; 45.11 and 57.50 rubles.
Data on enterprise costs, rub.
| Expenses | Types of products | |||
| P1 | P2 | P3 | P4 | |
| Direct (variable) costs per unit of production by type - total Including:
wages of main production workers with accruals fare loading and unloading and forwarding taxes other |
35,70
8,70 |
23,95
6,45 |
42,20
7,60 |
54,96 8,00 |
Indirect (fixed) costs for the entire sales volume - in total, including:
travel expenses interest on loan other general expenses |
178 670
125 000 |
|||
Structure of proposed product sales based on market research:
P1 - 42% P3 - 20%
P2 - 13% P4 - 25% .
The company sets itself the task of receiving 73.3 thousand rubles in the coming month. arrived. You need to know how many units of each type of product you need to sell to make that profit.
Let us denote the sales level P2 as X. Based on the sales structure, sales will be:
- P1 - 3.231Х;
P3 - 1.54X;
P4 - 1.923Х.
Revenues from sales:
- P1 - 38.13*3.231X = 123.198X
P2 - 25.58Х;
P3 - 69.469Х;
P4 - 105.68Х
The total variable costs associated with the sale of products will be:
- P1 - 35.70*3.231X = 115.35X; P2 - 23.95Х;
P3 - 64.99X;
P4 - 105.68X.
Sales revenue - Total variable costs - Fixed costs = Profit.
123.198X + 25.58X + 69.469X + 110.569X + - (115.35X + 23.95X + 64.99X + 105.68X) - 178,670 = 73,300
X = 13,370.
Thus, to obtain the planned profit, the company needs to implement:
- P2 - 13,370 pcs.;
P1 - 13,370*3.231 = 43,198 pcs.;
P3 - 20,589 pcs.;
P4 - 25,710 pcs.
Calculation of the expected profit of the enterprise
| Line no. | Indicators | P1 | P2 | P3 | P4 | Total |
| 1 | Sales volume, units | 43 198 | 13 370 | 20 589 | 25 710 | 102 867 |
| 2 | Unit price, rub. | 38,13 | 25,58 | 45,11 | 57,50 | - |
| 3 | 35,70 | 23,95 | 42,20 | 54,96 | - | |
| 4 | Marginal income per unit of production (line 2-line 3), rub. | 2,43 | 1,63 | 2,91 | 2,54 | - |
| 5 | Total marginal income (line 4 line 1), thousand rubles. | 104,97 | 21,79 | 59,91 | 65,30 | 251,97 |
| 6 | Fixed costs, thousand rubles. | - | - | - | - | 178,67 |
| 7 | Operating profit (line 5-line 6), thousand rubles. | - | - | - | - | 73,30 |
It is necessary to analyze the profitability (ratio of profit to cost) of individual types of products. For calculation full cost As the basis for the distribution of indirect (fixed) costs, we will take the cost of the basic materials necessary for the manufacture of each type of product. Then P1 will account for fixed costs in the amount of:
178,670*11.00:(11.00 + 8.55 + 25.50 + 30.80) = 25,911.3 rub.
The expected production volume of P1 is 43,198 units, therefore, indirect (fixed) costs per unit. will be:
25,911.3:43,198=0.60 rub.
Likewise for other types of products.
Calculation of the total cost and profitability of one piece. products
| Line no. | Indicators | P1 | P2 | P3 | P4 |
| 1 | Variable costs per unit of production, rub. | 35,70 | 23,95 | 42,20 | 54,96 |
| 2 | Fixed costs, rub. | 0,6 | 1,51 | 2,92 | 2,82- |
| 3 | 36,3 | 25,46 | 45,11 | 57,78 | |
| 4 | Unit price, rub. | 38,13 | 25,58 | 45,11 | 57,50 |
| 5 | Profit (line 4-line 3), rub. | +1,83 | +0,12 | -0,01 | -0,28 |
| 6 | 5,0 | 0,5 | -0,02 | -0,5 |
The calculations performed indicate that the production of P3 (-0.02%) and P4 (-0.5%) was unprofitable.
Total profit expected as a result of production:
P1 - 1.83*43,198 = 79.0 thousand rubles;
P2 - 1.6 thousand rubles;
P3 - -0.2 thousand rubles;
P4 - -7.2 thousand rubles;
_________________________________
Total: 73.3 thousand rubles.
Are there possible options for optimizing the developed production program? To improve the financial position of the enterprise, should it be discontinued, for example, P4 products, from which a loss of 7,200 rubles is expected? Is it fair to believe that the result of this decision will be an increase in the enterprise’s profit from 73,300 to 80,500 rubles. (73,300 + 7200)?
Let P4 products be discontinued. Fixed costs will remain at the same level. Let's distribute them among the remaining types of products according to the same principle. Then the share of P1 will be:
178 670 11.00:(11.00 + 8.55 + 25.50) = 43656.4 rub.,
or per one piece: 43656.4:43198 = 1 rub. Likewise for other species.
Calculation of the full cost and profitability of types of products of the “improved” production program
| Line no. | Indicators | P1 | P2 | P3 |
| 1 | Variable costs per unit of production, rub. | 35,70 | 23,95 | 42,20 |
| 2 | Fixed costs, rub. | 1 | 2,54 | 4,85 |
| 3 | Total cost (line 1+line 2), rub. | 36,7 | 26,49 | 47,05 |
| 4 | Unit price, rub. | 38,13 | 25,58 | 45,11 |
| 5 | Profit (line 4-line 3), rub. | +1,43 | -0,91 | -1,94 |
| 6 | Profitability (line 5:line 3) 100.% | 3,9 | -3,4 | -4,1 |
Comparing the results obtained with the previous ones, we find that the financial results have deteriorated significantly. Products P2 became unprofitable, and the loss ratio of P3 increased from 0.02 to 4.1%.
Profit should be expected from the new production program:
P1 - 2.34 43 198 = 101.1 thousand rubles;
P2 - -12.2 thousand rubles;
P3 - -39.9 thousand rubles;
_____________________________
Total: 49.0 thousand rubles.
Therefore, the accepted management decision to optimize the production program turned out to be wrong. Discontinuation of P4 products will lead to a decrease in profit from 73.3 to 49.0 thousand rubles.
Let us evaluate the unprofitable products of P4 from the perspective of the direct costing system.
Profitability analysis of P4 from the perspective of the direct costing system.
Thus, P4 is not unprofitable.
Under partial load conditions production capacity The decision to discontinue a product that is unprofitable as a result of full cost calculations does not always turn out to be correct. If this product generates a positive marginal income, then discontinuing it will only worsen financial position enterprises. Solving this issue on the basis of calculating the full cost leads to negative consequences.
Let us assume that the lack of basic materials does not allow the production of P1. The management decided to load the temporarily freed capacity with P2 production. What should the enterprise’s production program look like in order to achieve a profit of 73,300 rubles?
New implementation structure:
- P2 - 55%;
P3 - 20%;
P4 - 25%.
- P2 - 2.75X;
P4 - 1.25X.
Fixed costs will not change (RUB 178,670) Variable costs per piece. P2 - 23.95 rubles, P3 - 42.20 rubles, P4 - 54.96 rubles. Let's make an equation: (25.58*2.75X + 45.11X + 57.50 1.25X) - (23.95*2.75X + 42.20X + 54.96 1.25X) - 178,670 = 73,300
X = 23,845 pcs.
Calculation of expected profit
| Line no. | Indicators | P2 | P3 | P4 | Total |
| 1 | Production volume, pcs. | 65 573 | 23 845 | 29 806 | 119 224 |
| 2 | Marginal income per unit of production, rub. | 1,63 | 2,91 | 2,54 | - |
| 3 | Total marginal income (line 1 page 2), thousand rubles. | 106,88 | 69,39 | 75,70 | 251,97 |
| 4 | Total costs, thousand rubles. | - | - | - | 178,67 |
| 5 | Profit (line 3-line 4), thousand rubles. | - | - | - | 73,3 |
Conclusion: planned structural changes in production program enterprises will provide him with the desired profit (RUB 73,300).
2. Deciding on a special order.
Problem: whether or not to accept a special order at a price below the normal market price and sometimes even below cost. Such orders usually consist of large quantity homogeneous products in one package.
Because these orders are random, one-time events, they cannot be included in revenue and expense forecasts. They can be accepted if production capacity allows.
A marginal approach is used to analyze special order decisions. All variable costs are generally relevant, while fixed production costs and all selling, general and administrative expenses are irrelevant.
Example. Company X is offered a special order to produce 30,000 units at a cost of $2.45 per unit. Transport costs are borne by the customer. Accepting an order will not affect traditional sales volume in any way.
Data: forecast annual production - 500,000 units, volume current year- 510,000, the maximum production capacity of company “X” is limited to 550,000 units of product (i.e., at this stage, the enterprise’s capacity is not fully used).
Unit costs
Should I accept the offer?
Since the proposed price of $2.45 per unit is less than not only the company price ($4.00), but even less than the full cost ($3.00), it seems that the order does not need to be accepted.
Comparative analysis of special order.
| No special order (510,000 units) | With special order (540,000 units) | |
| Sales revenue | $2,040,000 | $2,113,500 |
| Minus variable costs | ||
| Direct material costs | 459,000 | 486,000 |
| Direct labor costs | 306,000 | 324,000, |
| ODA Variables | 153,000 | 162,000 |
| Package | 76,500 | 81,000 |
| Total variable costs | $994,500 | $1,053,000 |
| Marginal profit | $1,045,500 | $1,060,500 |
| Minus fixed costs | ||
| ODA | 100,000 | 100,000 |
| Selling and administrative costs | 250,000 | 250,000 |
| Total fixed costs | $260,000 | $260,000 |
| Operating profit | $785,500 | $800,500 |
We get an increase in contribution margin and operating profit of $15,000. So special order can be accepted.
3. Determination of the product structure taking into account the limiting factor.
The criterion for maximizing profit under conditions of a limited resource is the highest marginal profit per unit of this resource. If there is not one, but several limiting factors, then the problem of profit maximization is solved using linear programming.
Example. The company produces two types of products P1 and P2. The following data is known:
The level of marginal profit is calculated as the ratio of marginal profit per unit to the price per unit.
Since P2 brings a higher level of marginal profit, it is preferable to produce it.
But, if it is known that production capacity is limited to 1,000 machine hours, and that three units can be produced in one hour. P1 or one unit. P2, it is necessary to continue the analysis taking into account the limiting factor, i.e. machine hours.
The choice should be made in favor of P1, since its production achieves a large marginal profit per unit of the limiting factor, and, consequently, for the entire volume of activity as a whole.
4. Making a decision to “produce it yourself or purchase it.”
This is the most a common problem all industries requiring assembly operations. The main task is to determine all elements of costs and income relevant to such a decision. The following necessary data must be considered here:
The decision to “make it yourself or buy it” is necessary to explore ways best use available production capacity. Solutions could be:
- Keeping production capacity free;
- Transition to the purchase of components and rental of unused funds;
- Purchase of components and transfer of free capacity to the production of other products.
Example. The following data is available on the cost of manufacturing the part:
There was an offer to buy this part for $19 rather than produce it. At first glance, the company should choose the purchase option, since it will cost them $1 less per part. All relevant information should be analyzed to make a decision.
Let's say that of the $60,000 in fixed overhead costs, $30,000 represents costs that cannot be avoided no matter what decision is made. These are depreciation of equipment, property taxes, insurance payments, wages of workshop management personnel, etc. That is, $30,000 of fixed overhead costs ($3 on average per part) are irrelevant. Even if the part is purchased, the $30,000 in fixed costs will still remain.
| Relevant indicators | Total costs | Cost per part | ||
| Prod. | Buy | Prod. | Buy | |
| Purchase costs | $190,000 | $19 | ||
| Basic materials | $10,000 | $1 | ||
| Wages of production workers | 80,000 | 8.0 | ||
| ODA Variables | 50,000 | 5.0 | ||
| Permanent ODA, which you can do without if you choose “buy” | 30,000 | 3.0 | ||
| Total costs | $170,000 | $190,000 | $17 | $19 |
| The difference is in favor of "produce" | $20,000 | $2 | ||
The above analysis was based on the premise that the vacated equipment, when production of a part is abandoned, will not be used in any other way. Therefore, the essence of the question is not “produce or purchase,” but how best to use free capacity.
Sales profit typically makes up the largest portion of pre-tax profit. Therefore, it is important to determine the influence of individual factors on it.
In the printing house in question, sales profit in the previous year was 6,720 thousand.
Rub., or 83.7% (6720/8025x100) of profit before tax. In the reporting period, profit from sales was received in the amount of 13,265 thousand rubles, or 98.3% of profit before tax (13,265/13,496x100).
It is important to determine the factors that ensured an increase in sales profit in the reporting year compared to the previous period.
When analyzing sales profit according to Form No. 2, you can determine the influence of the following factors:
Increase (decrease) in revenue from product sales;
Changes in product prices;
Reduction (increase) of business expenses;
Reducing (increasing) the cost of goods and products sold;
Reducing (increasing) management costs.
First of all, it is necessary to determine the additional revenue from sales of products that the company received due to changes in prices under the influence of inflation.
To do this, you need to express revenue from sales of products in the reporting year in comparable prices of the previous period by dividing it by the price index, i.e.
where is revenue from sales of products at comparable prices, rubles; - revenue from sales of products in the reporting period in current prices, rub.; - price index; - percentage change in product prices in the reporting period compared to the previous period.
The impact of price changes on sales revenue is determined by the formula
In our example, revenue from product sales in the previous year amounted to 75,448 thousand rubles, and in the reporting period - 113,275 thousand rubles. (Table 6.1).
Due to inflation, product prices increased by 14% in the reporting year. Then the price index was 1.14%.
Consequently, revenue from sales of products at comparable prices will be equal to 99364.0 thousand rubles. (113275/1.14). Consequently, revenue from sales of products in the reporting period due to price changes increased by 13,911 thousand rubles. (113275-99364).
The impact of a change in product sales revenue is determined by multiplying the additional sales revenue resulting from the improvement economic activity enterprises, on the profitability of sales in the previous year, i.e.
where is sales revenue in the previous period, rub.; - profitability of sales in the previous period, which is determined by dividing profit from sales by revenue from product sales, %.
In our example
To calculate the impact of price changes on sales profit, it is necessary to multiply the additional volume of revenue from product sales received as a result of an increase (decrease) in prices by the profitability of sales in the previous period, i.e. use formula
The impact of changes in the cost of goods sold, products on sales profit is determined by the formula
where is the cost of goods and products in the reporting and previous periods, respectively.
For this printing house = 92,494 thousand rubles, = 62,482 thousand rubles. From here
Cost of goods and products in the reporting year by 1 rub. sales revenue amounted to 0.8165 rubles. instead of 0.8281 rub. This ensured a reduction in the cost of goods and products by 1,314 thousand rubles, or an increase in profit by the same amount.
To determine the impact of changes in commercial and administrative expenses, similar formulas are used:
where is an increase (decrease) in sales profit due to changes in business expenses, rub.; - increase (decrease) in profit from sales due to changes in management expenses, rub.; , - commercial expenses in the reporting and previous periods, respectively, rub.; , - administrative expenses in the reporting and previous periods, respectively, rub.
In our example, sales profit decreased due to an increase in business expenses by 1 rub. sales revenue by 22.6 thousand rubles:
Reduction of management expenses by 1 rub. sales revenue increased sales profit by 1880 thousand rubles.
The results of calculations of the influence of individual factors on sales profits should be summarized in a table, as is done in table. 6.2.
Table 6.2
The influence of individual factors on sales profit
| Indicator name | Change in profit amount, thousand rubles. | As a percentage of the previous year's profit |
| Increase in sales profits, | ||
| increasing the volume of revenue from sales of goods and products | ||
| increase in prices for goods, products | ||
| reducing the cost of goods and products sold | ||
| increase in business expenses by 1 rub. sales revenue | ||
| reduction of management costs by 1 rub. sales revenue |
The total influence of factors is thousand rubles, the difference in numbers is the result of their rounding when making calculations.
According to the table. 6.2 we can conclude that a significant part of the profit from sales was obtained by improving the results of the enterprise’s economic activities (increasing the volume of product sales, reducing the cost of sales and reducing management costs). There was a negative impact from a slight increase in business expenses.
More on topic 6.3. Sales profit analysis:
- ANALYSIS OF ENTERPRISE PROFIT. ANALYSIS OF THE COMPOSITION AND STRUCTURE OF PROFIT
- Analysis of the volume of production and sales of products: tasks, indicators, sequence of analysis of factors influencing the volume of production and sales of products. Using handouts, analyze the factors influencing the volume of production and products.
In the process of activity, companies have to calculate losses, compare actual revenues, build production forecasts, but the most important indicator is profit. Any commercial structure strives to increase it. And it is in the interests of business to conduct a thorough and regular analysis of sales profits, the purpose of which is to identify reserves for increasing the well-being of the organization.
Multilateral influence
Making a profit from the sale of products is a natural desire of every enterprise. However, this relative indicator depends on a number of significant factors present in financial activities:
- Volume of sales.
- Price level.
- Product range.
- Cost of production.
Factor analysis helps to identify their share of influence. A summary table is drawn up that describes the indicators for the reporting and base periods (year, month, quarter or any other) - they are taken from financial statements. Then the growth rate is calculated in absolute and relative form for the primary assessment of each indicator. Next is the calculation specific gravity factors in the overall picture. Let's try to clearly carry out the calculation of factor analysis, giving a small example.
The downward change in profit is obvious, but the calculation will show how individual factors influenced this trend. First, let's evaluate the impact of sales volume (or revenue) on profit margins. To do this, let’s take the value of revenue in base prices (83,333) for the reporting period and compare it with the value of revenue in the base period (120,000) - it turns out that revenue fell by 30.6%. Applying this share to basic profit, we get 27,000 x (-30.6%), or -8,262 thousand rubles. This is exactly how much profit decreased due to a drop in sales. It is worth noting that for correct measurement, only homogeneous products are used, because different products have different prices.
To ensure correct measurement, only homogeneous products are used, because different products have different prices.
Now let's calculate how profit has changed due to changes in the price level. To do this, from the revenue of the reporting period in current prices, we subtract the revenue of the same period in basic prices, that is, 100,000 – 83,333 = 16,667 thousand rubles. Due to the price increase, profits increased by the resulting value.
The impact of cost reduction is calculated as follows: Revenue of the reporting period (100,000 thousand rubles) x (Share of cost in revenue in the base period (66%) – Share of cost in revenue in the reporting period (70%)) / 100 = -4000 thousand roubles. It turns out that with the increase in the share of cost in the company’s total income, revenue decreased by 4,000 thousand rubles.
The impact of commercial and administrative expenses is calculated similarly - the results are +170 thousand rubles. and -330 thousand rubles. respectively. The remaining share in the change in profit comes from adjusting the range of products, works or services in the company. It can be calculated as follows: change in profit in absolute units (-8000 thousand rubles) - influence of sales volume (-8262 thousand rubles) - influence of the price level (16667 thousand rubles) - influence of cost (-4000 thousand rubles .) – the impact of commercial and administrative expenses (-160 thousand rubles). By calculation, it turns out that the product structure influenced the change in profit by -12,245 thousand rubles.
Margin analytics
The study of individual factors affecting profit is also possible with the inclusion of variable and fixed costs in the calculation. Marginal income as the difference between revenue and production costs, including semi-variable costs - is profit and fixed costs in the aggregate. The formula is:
Revenue – Cost – Variable costs = Profit + Fixed costs.
The calculation shows the formation of profit from sales by covering fixed income. Profit is calculated using the formula:
Profit = Volume of production x (Price – Conditionally variable costs) – Fixed costs.
In this case, similar to the previous method, a chain substitution of reporting and basic values occurs. The essence of the technique is to identify the impact on profit not only of sales volume and cost, but also of variable and fixed costs.
The essence of the technique is to identify the impact on profit not only of sales volume and cost, but also of variable and fixed costs.
Condition 1 = Actual volume x (Basic price – Basic variable costs) – Basic fixed costs
Condition 2 = Actual volume x (Actual price – Basic variable costs) – Basic fixed costs
Condition 3 = Actual volume x (Actual price – Actual variable costs) – Basic fixed costs
The influence of factors is calculated as follows:
- Due to sales volume: Condition 1 – Basic profit
- Due to the price: Condition 2 – Condition 1
- Due to variable costs: Condition 3 – Condition 2
- Due to fixed costs: Actual profit – Condition 3
Reviewed the financial analysis profit is otherwise called direct costing - in modern market conditions it is used even more often than the usual Russian technique. To calculate the profit for the company as a whole, you will need a general formula:
Profit = Revenue x (Total value of the products of the share of each individual product in revenue and the share of its marginal income in revenue) – Fixed costs
It is difficult to underestimate the importance of growth in such an indicator as company profit. Its analysis requires more attention and responsibility than the analysis of any other meaning. Influence of internal or external factors, dictating new conditions for the existence of business, sometimes has a detrimental effect on the profitability of individual products. It is important to notice the threat in time and take action.
