28.Profitability and unprofitability
[FONT=微软雅黑]A. Profitable and unprofitable products[/FONT]
A supermarket manager talks about the costs and prices for some of its products.
a. We make a profit: the product is profitable or profit-making.
b. We break even: we reach break-even point.
c. We make a loss. The product is loss-making, but we use Product C as a loss leader to attract people to the store, as we know they will then also buy profitable products.
d. Product D is very profitable and we sell a lot of it. It's one of our money-spinners or cash cows, products that have very good profitability.
B. Budgets and expenditure
Like all companies, Nordsee and Vaclav have to budget for, or plan, their costs, and have a budget. Look at the graphs comparing their planned budgets with their actual expenditure (what they actually spent0.
a. Nordsee went over budget and overspent by 200,000 euros.
b. Vaclav underspent by 50,000 euros, He was under budget.
c. On advertising, Vaclav's spend was only 200,000 euros, while Nordsee's advertising spend was 700,000.
Note: Spend is usually a verb, but it can also be a noun, as in advertising spend.
C. Economies of scale and the learning curve
Ford is one of the biggest car companies in the world. It benefits from economies of scale. For example, the costs of developing a new car are enoumous, but the company can spread them over a large number of cars produced and sold. In dealing with suppliers, it can obtain lower prices, because it buys in such large quantities.
The company also benefits from the experience curve or learning curve: as it produces more, it learns how to do things more and more quickly and efficiently. This brings down the cost of each thing produced, and the more they produce, the cheaper it gets.
Over to you
Does your company, or one you would like to work for, have a cash cow or a loss leader?
Does your company, or one you would like to work for, benefit from economies of scale?