Question

I have a case study and I need some ideas please. below is a summary. I needs ideas regarding management of cost accounting

In a company X, the expenses in human ressources are taking 60% of the revenue, so the profit is being considerably reduced. as a cost accountant, what strategies or tactics can be implemented in order to manage better or minize this cost and increase profit. PLEASE i NEED ideas in order to keep moving with this case study. thanks

Answer 1

ANS:

Dear student,

There are 3 main ways to improve the profitability of your company: Sell more, price higher and reduce costs.

Some organisations focus mainly on selling and on delivering great service to customers. That is great. Let us remember that profits can also be increased by greater cost efficiency. How do we achieve this?

Here are 19 practical ways of reducing costs and increasing your profits. How many might you action to make 2019 a more profitable year?

1. See every cost as “up for grabs”. No cost is too small to worry about. Ask yourself: ”If I eliminated this cost, would revenue, customer satisfaction or profits be adversely affected?” For all costs associated with customer satisfaction, be sure you are only spending on what customers really value.
2. In areas where you wish to control costs, set authorisation levels so that approval is required before the expenditure is made.
3. Speak to your suppliers and negotiate reductions on the cost of your purchased products. What % of your sales are you spending on purchased products? If this is 40% and you reduce by 10%, you have added 4 margin points to your bottom-line. Start with highest cost items first.
4. Never let the purchasing person be the sole person negotiating the price, as this individual can get too close to suppliers. You need to retain an element of the “tough guy”.
5. When suppliers say “no”, do not give up. Keep asking.
6. Consider the cost and use of purchased services e.g.
   1. Office supplies
   2. IT
   3. Telephony
   4. Maintenance contracts
7. Sign cheques yourself or at least above a certain value. This will keep you aware of what is being spent in your company.
8. Review all capital expenditure.
9. Reduce stock by purchasing only when necessary.
10. If you never fire an employee, you will not maximise profits or achieve a high performing business, hard as this may seem.
11. Say “no” to additional hires, until it is crystal clear the resource is needed.
12. Evaluate salary levels relative to the value each individual brings to company profitability.
13. Never give regular bonuses unless they are linked to improved productivity and profits.
14. Narrow benefits to those few that employees truly value.
15. For underperforming and unprofitable businesses, opportunity abounds. Much work done is unnecessary, while the necessary work is often done inefficiently.
16. In most profitable businesses, managers have broader responsibilities and spans of control (direct reports per manager). Consider if you can eliminate some of your administrative and management positions.
17. Streamline your meetings. Make decisions, call customers, reduce costs and take actions all day long.
18. Create a sense of urgency by having a list of actions for each day. Identify what actions raise revenue or reduce costs. Get these done by noon. Then you can work on other matters.
19. Do not over delegate. Everything that truly impacts the bottom-line, decide yourself.

However, Crisis that has afflicted this country’s economy has affected the profits of many companies. In such an uncertain scenario, good managers need to reevaluate their businesses and seek to survive this time of turbulence while maintaining their company’s health.Increasing profits by reducing costs is essential to this process. However, it needs to be done in a planned and organized fashion.Reducing costs doesn’t simply mean cutting spending in a haphazard manner. You need to understand the nature of each cost and its relationship to your company’s sales and profits.

Thus, we’ve written this post to offer tips on how to cut costs in an intelligent manner and also increase your business’s profits.

Establish goals:

Identify all your costs and expenses for at least the last six months. After careful analysis, establish reduction goals for each item. This is known as cost forecasting, and should be done monthly.

In addition, you should keep track of costs regularly, comparing your forecast with what was effectively spent month by month, verifying if your goal is being achieved. If it isn’t, you should analyze what could be impeding the realization of your goals.

Be careful with false impressions:

A large sales volume doesn’t necessarily mean large profits. Often increased sales give an image of prosperity, while behind the scenes expenses are consuming all the profits.

To get real results, spending has to be used in an efficient manner. This can be achieved by increasing your average ticket (the customer’s average purchase), optimizing the ROI (return on investment) of your campaigns, and improving your procedures and internal methods.

Analyze your costs in percentage terms:

In analyzing your costs, use percentages instead of quantities of money. It’s good to do this because if your sales increase but a cost remains constant, this cost now represents a smaller percentage of your sales volume. And when you diminish your cost percentage, you’re increasing your profits.

On the other hand, if your sales volume remains constant, you can increase profits by reducing the cost of a specific item. This way you can strive for two goals: diminishing specific expenses and increasing productivity at the same time.

Use a reliable system:

Before you determine whether a cut in spending will increase your company’s profits, you need reliable information about your operations. This data can be obtained from a system which offers strategic management of your company’s costs, profitability and performance and is integrated with your company’s existing systems.

With this solution, you’ll have access to basic and complex graphic analyses, and the ability to execute advanced simulations for possible economic scenarios. This is important in preparing monthly reports, budgets and evaluations of your operations.