Question

List and describe 5 things that company management can do to control and or reduce their operating margins?

Answer 1

5 things that company management can do to control and reduce their operating margins

1) Using perpetual inventory system that gives highest COGS - There are various method to valuate inventory and the amount which is charged as COGS such as LIFO, FIFO and average cost method. The company should choose the method that adds up to highest COGS to reduce or control the operating margin.

2) Decrease the net selling price by offering discount - One of the most important component of operating margin is the revenue earned. The co. can decrease the selling price to reduce the operating margin by offering discount and decreasing the net sales.

3) Increasing the Operating cost - The company can increase the operating cost such as administrative and other selling cost to decrese.

4) Don't implement the savvier purchasing practicesIncrease the cogs - The co. can not order the idle quantity from vendors which will increase their storage cost, ordering cost and not taking advantage of bulk ordering. This will increase the vendor cost and hence reduce the operating margin.

5) Reduce efficiencies and increase labor cost - The salaries that you pay to your employees and the associated employer taxes, are an additional expense that reduces your net operating income.