Week3 Bsa Essay

Riordan Manufacturing has released their annual profit and loss statement for 2011. Their statement shows a net profit of $3,310,662 which is an increase from 2010 by $879,790. This means there were able to increase their value over the last twelve months by increasing sales and lowering the direct cost of goods. This shows that Riordan was able to spend less money on the cost of materials to make their product while still selling more of them. However, Riordan did increase their expense from last year. In 2011 Riordan was able to pull in $66,608,660 in total sales but increased their operational expenses by $704,913 from 2010. The profit and loss statement shows a high level break out of what effect those associated increases and decreases had on their net profit. The total sale of $66,608,660 reflects the amount of money Riordan was able to collect for all the goods sold in 2011. This number however does not account for the cost of the material, operating expenses, and other taxes and liabilities Riordan needed to pay for in order to make, ship, and guarantee their product. The cost of just the material needed to make their product was $51,592,470. In the statement this cost is shown as the direct cost of goods. This number accounts for everything down to the cost of the plastic lids needed, the custom labels, or whatever material they needed to buy for the production of their bottles. From 2010 they were able to decrease this expense probably by negotiating better prices with their outside vendors or by using a lower grade product. By deducting the direct cost of goods from the sales Riordan now has $15,016,190 in what is called their gross margin. With a $15,016,190 gross margin Riordan now has to account for all of the indirect costs needed to produce their product. These indirect costs include things like sales and marketing materials and labor hours, or the wages for the workers on their product lines. This number also reflect the expense to keep the light on at the manufacturing facility, the cost for these type of things are not directly billed to customers but percentages are accounted for in the price of the goods. If the customer is billed for only the direct cost of goods then the production company will see a loss in revenue because they did not generate any revenue to pay the workers for building the product or for paying the sales team for documenting and quoting the sale. This is why profit margins and expenses are accounted for when negotiating the price of goods.
Research and development, quality assurance, and general administration are areas that indirectly affect the bottom line of a company’s profit, and while they at first may not seem like it they are essential to be able to generate and keep sales. If you don’t have administration to keep records or answer phone calls then you may lose customers, you may also lose customers if you don’t have quality assurance to ensure that your product meets company, state, and federal standards. The cost of a product reflects more than the cost of materials to build it, there are a lot of various expenses in the production process. While Riordan was able to reduce the direct cost of goods from last year they saw an increase of indirect costs in 2011.
According to their statement Riordan spent a total of $9,996,603 in indirect operation expenses in 2011, that shows a $704,913 increase from the previous year. The statement shows that Riordan saw increases in every indirect expense category from last year. Some of this can be explained by market trends, cost of living and labor increases, and/or the development of a new product. The profit and loss statement does not include this information on why the expenses increased, if the company is in the midst of an R&D effort than this increase may have been expect however if the

Show More

Related Documents: Week3 Bsa Essay

Essay on BSA385 Syllabus