You are on page 1of 14

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 Office & Supplies
Salaries Sales Promotion
Utilities Taxes & Licenses
Depreciation Maintenance
Rent Delivery
Building Services Miscellaneous
Insurance
Interest
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) List alternatives
to improve profits
2) Determine how
expenses & profits
vary with volume
3) Analyze alternatives vis-à-vis profit
4) Select an alternative & implement
Action Steps In Profit Plan
1. How Do Expenses Vary With Volume
Sales Expenses
a. $364,000 $364,000
b. $530,000 $490,000
c. $700,000 $618,700
 Volume Profit
a. $364,000 $ -0-
b. $530,000 $ 40,000
c. $700,000 $ 81,300
4. Analyze Alternatives
5. Select/Implement Plan
Planning For Profit
 Establish Profit Goal $ 52,000
 Determine Sales Volume 530,000
 Estimate Expenses 490,000
 Determine Profit Estimate 40,000
 Compare Profit To Goal -$12,000
 List Alternatives
a. Change Sales Volume
b. Decrease Expenses
c. Add Products/Services
d. Subcontract
Breakeven Chart
Control
“…the process of ensuring
that organizational goals are
achieved.”

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


Control Process
1. Setup Standards
2. Measure Performance
3. Actual vs. Planned
4. Deviations Excessive?
5. Take Corrective Action
Set Standards
• Units Consumer/Produced
– Standard Hours Per Unit
– Miles Per Gallon
• Price Paid/Charged- Price Per Unit
• Requires
– 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

You might also like