The accepted formula for business profit is Profit = Selling price – Cost, the only controllable factor being Cost, as a lot of times, selling price is driven by market forces.
Proper focus on establishing a good costing system and regular review of costing reports will go a long way in ensuring that the bottom line also grows in pace with the top line. Many times, entrepreneurs face a situation when the Sales is growing at a good pace but the Profits are dwindling. This is mainly due to lack of focus on Cost of Production and Cost of Sales.
Kenspire Advisors provides 360 degree solutions to costing, right from analysis of cost drivers, building up costing systems, implementation of the system, developing costing MIS on a regular basis.
The team is headed by S. Subhashini, Director who is an experienced practicing Cost and Management Accountant.
Case Studies : A Rs.50 Crore Auto-component manufacturing company in existence for about 25 years with about 1200 product variants, did not have its costing systems in place. Though the sales was going up over the years, the profit ratio was going down. The management could not take a decision on saying no to any customer or any product due to lack of proper costing data at the product level.
After analyzing the process, an appropriate costing system was developed, with cost mappings from the origin of the cost drivers. The result was to achieve a product level contribution report and this was achieved with good amount of effort and time.
Once this report was in place, the management could understand that the real problem was not with the pricing but with certain uncontrolled overheads. The management focus was diverted to the proper areas and the results achieved.