SCM 479 Lecture Notes - Lecture 1: Contingent Work, Futures Exchange, Gas Oil
14 Jan 2017
School
Department
Course
Professor
Price/Cost Management Basics 1
Why price-cost management?
• Most companies are in business to earn a profit
• Profit = Revenue – Cost
• How do we increase profit?
– Increase Revenue (Sales)
– Decrease Cost
Strategic Profit Model
Other expenses
• Corporate Overload
• SG &A
• Corporate Burden
Purchasing has an effect on:
• Materials
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• Inventory
• Labor – what is required to produce product?
o Contingent labor
• Flows through the whole model then
Costs as a Percent of Revenue
Gross Profit = Revenue – Cost of Goods Sold
Base Case
ROA is an efficiency measure. Use about $10 in assets to make $1 in profit.
Materials
57%
Labor
9%
Mfg O/H
20%
Gross Profit
14%
Household Appliance Industry
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Other expenses: corporate overload, sg &a, corporate burden. Labor what is required to produce product: contingent labor, flows through the whole model then. Gross profit = revenue cost of goods sold. Use about in assets to make in profit. Use about in assets to generate in profit. Sales only creates marginal revenue and the sales split through the model. With the decrease in material costs then it goes straight through the bottom line. The price the buyer pays is based on supply and demand not linked to the supplier"s cost structure. Could end up selling lower than the costs. To recover a part of the costs: gas/ oil, airplane tickets, hotel rooms, uber, corn/wheat. The price the buyer pays is directly linked to the supplier"s cost structure. Supplier cannot sell the item if the price does not cover its costs of the item: parts and components, any engineered manufactured product, basic services cleaning,
