The main components of this statement are sales, cost of goods sold and expenses; the primary areas of focus are the revenue amount and expenses amount (Slater, 2012). Every organisation tries to keep a tight control on its expenses so that it can fulfil the requirements of its business effectively. Being a cost effective organisation allows the organisation to maintain a strong financial position and also with their savings they can work upon other business strategies such as expansion strategies and forming business units. For instance, if the equipment maintenance cost is increasing, then it can consider replacing it with a new one (Hansen, Mowen & Guan, 2009). Replacing with a new one may seem a heavy expense initially but when compared to the replacement costs on a constant mode, buying the new equipment would be a cost effective choice.
In every business, there are two main classifications of costs or expenses i.e. variable and fixed costs and they need to be adequately monitored so that sufficient amount of profit can be earned (Tulvinschi, 2010). All costs and expenses in the business need to be carefully recorded and analysed so that further decision making is according to the current financial scenario of the business. In the manufacturing business like Ash PLC, the variable cost is of utmost importance as it has to ensure that it can produce the units according to the industry standards and within its budget range. ...Show more