Analysis of expenditure statistics can be used to calculate relationships between areas of expenditure and income. This will increase efficiency by leading to optimization of various areas of expenditure against incomes. Expenditures on promotion, sales force, packaging, dispatch or invoicing may be analysed against sales turnover to indicate the relationship between sales and each particular area. This may be used in budget allocation for future years. The same expenditure statistics may be analysed against specific product sales. This forms a basis for the allocation of effort devoted to, or overheads charged against, these products. A more fruitful analysis may be to look at items of expenditure against profit generated. A sales promotion may have produced an increase in sales turnover yet have had no effect at all on profit. The upheaval that sales promotion activity often produces in the production system may be shown to be not worthwhile with this kind of analysis.
Another area of expenditure that can be analysed in a number of ways is advertising expenditure. This may be set against product sales revenue, profit, market type or media. The outcome of any of these analyses will prove useful for planning decisions. Analysis of advertising expenditure by product line may well indicate that most advertising expenditure goes on the biggest product lines. This is particularly likely to be the case when advertising budgets are determined on the basis of sales turnover. Analysis may indicate that greater response could be achieved by diverting advertising expenditure to smaller products with greater potential for growth. This could result in a greater increase in overall profitability.
The value of all these kinds of expenditure analysis lies in the fact that they can increase the organization's perception of what relationships do and do not exist between various types of expenditure and resultant effects in the marketplace.
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