Understanding the cost of profitability
It is no secret that today’s economic environment has introduced a number of challenges that make it difficult for companies to achieve and maintain profitability.
One of the first lessons of accounting is the equation Profit = Revenue – Cost. Since aggressive revenue growth is not in the cards for many manufacturers, they are refocused on managing costs as the best option to improve profitability. For many organizations, applying that equation to determine profitable products or customers is not as simple as it seems. Gathering the revenue values is fairly straightforward, but calculating the cost to manufacture a product is often more complicated than simply adding up materials and labor costs.
In an attempt to get more precise cost results, often times companies rely on spreadsheet tools because of their availability and familiarity to finance and accounting groups. While spreadsheets may work for smaller, ad-hoc analysis, they fall short in handling massive costing processes due to their limitations with scalability, data integrity, integration, and security.