Paper Example on Cost Management

Introduction

The cost of sales is an essential aspect in every company today especially in determining the profits and aligning the revenues accrued as well (Marjanovic et al., 2018). In 2015, Bee Tan Corp spent 240,100(in US$'000) in sales delivering revenue of 800,000(in US$'000). It means that the company acquired a gross profit of 559,900 which is more than twice the cost of sales. On the other hand, the company spent 1,380,000(in US$'000) in 2016 aligned to the acquires sales revenue in the year accumulating 2,500,000(in US$'000) that delivered a gross profit of 1,120,000(in US$'000) which explain on the ability of Bee Tan Corp to cater for its costs and achieve profits. In 2017, Bee Tan Corp spend 4,100,000(in US$'000) on the cost of sales delivering an increase on the cost of sales that achieved a profit of 2,500,180(in US$'000) which is a developing trend.

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Activity Drivers

On the other hand, different drivers are overseeing the operation of the company. Within the three years, there is a significant increase on the annual transacting user with 2015 holding 200 users (in millions), 2016 holding 245 users (in millions) and 2017 holding 300(in millions) users. Moreover, it means that there is an increasing usage of their platform regardless of competition from other companies (such as Makan Corp).

Nonetheless, as accrued from the financial statements, Bee Tan Corp. has been facing losses from 2015 to 2017 although the sales have been increasing significantly. It is outright clear that everything is increasing; however, profits should be increasing as well rather than accumulating losses. Also, there is an increase in profits but no significant decrease in operating losses since they are still high as well. For instance, Bee Tan Corp. faced 1,720,100(US$'000) operating losses in 2015, 1,460,000(US$'000) in 2016 and 597,920(US$'000) losses in 2017.

Proposal On measures to Mitigate Losses in the Following Financial Year

With the aim to ensure that the company mitigates losses in the following financial year, the company needs to develop a significant measure that will be helpful in the long run. Before establishing the loss mitigation plan, it is essential to understand that Bee Tan Corp is spending a large sum of money in expenses (selling and marketing expenses, research and development expenses, and general expenses). These are the significant aspects in the company leading to the increment of losses. The first measure that Bee Tan Corp. should take in the struggle to mitigate losses in the following fiscal year is to consider reducing the selling and marketing costs. In 2015, Bee Tan Corp. spent 1,440,000(in US$'000), 1,460,000(in US$'000) in 2016, and 2,300,000(in US$'000) in the year 2017. As a result, it outlines on the need for cost cutting in sales and marketing expenses. That means as Bee Tan Corp. should increase revenues without increasing the cost of sales and marketing.

Sales Management- In Bee Tan Corp, there is a possibility that the company is using the wrong sales method, or salespeople lacking the right tools. In sales management, it seeks to ensure that proper sales strategies are used that deliver obvious benefits and do not spend much money. According to Ingram, LaForge, Williams, and Schwepker (2015), the sales sector in business is changing in the 21st century. In the text, it outlines the actual ways through which an organization can set up proper sales management. For example, (Ingram et al., 2015) delivers that a personal selling function ought to be set up, define the strategic role of the sales function, develop a salesforce, directing the sales force, and later determining the performance and effectiveness of the sales force. In the approach concerning sales management, it seeks to maintain that proper the salesforce have appropriate ways that establish customer trust, create demand, and also educate the buyer (McDonald & Wilson, 2016). With experienced and expertise salesforce, there will be more successful in the production of a higher revenue with less spending on sales.

Establish a Floor- in every marketing and selling activity; the customers are a different individual that have varying ideologies and perceptions. In some of the organizations, the cost of selling and marketing outweigh the lifetime value of the customer, a problem that may affect Bee Tan Corp shortly if the losses are not entirely mitigated. Unless there are valid reasons to keep compelling a customer, the company should stay open to direct sales. With a direct sales force that delivers a high-end chain of transactions, there are chances to providing a high revenue and lower sales expenses. According to Mullins, Ahearne, Lam, Hall, and Boichuk (2014), it is essential to know your customer. Salesforce intelligence in marketing is crucial in improving sales and at relatively lower cost; however, if the perceptions of the customer are inaccurate the company could acquire sales but high sales and marketing cost. Hence, the management could correct the inaccuracies by assuming the use of a behavior-based control system (Nagle & Muller, 2017).

Embrace Technology- in the current business structure, different organizations are using the aspects of technology as competitive advantages. With competition from a company such as Makan Corp., Bee Tan Corp needs to embrace technology in the aim to reduce operating expenses. The research and development expenses are relatively high for Bee Tan Corp. the primary purpose to adopt technology is to deliver a clear line as to what might be affecting the business and ensuring proper inventory management. Technology does not only seek the use of ERP but also plays a significant role in proving research and development information.

Proper Audits- The fact that Bee Tan Corp realizes significant profits, means that there might be a problem in the expenditure since the business is spending more than its revenue. Thus, an audit helps ensure that every tab in the industry is in its outright position (Chan & Vasarhelyi, 2018). Therefore, it means that any recurring risks and losses can be determined which helps in mitigating the losses. In every company, revenues need to balance with expenses (Luippold et al., 2015). Thus, in case of a difference, it means something might not be right and may be facing challenges such as theft, fraud, among other that increase expenses in a business.

Reduce Costs by Outsourcing- technology is delivering a breakthrough for many businesses, especially in the strive to mitigate losses and increase profitability, as well as increase revenue while cutting the cost of sales (Blocher, Stout, & Cokins, 2010). However, instead of delivering an over-reliance on technology, it could be prudent if Bee Tan Corp shifted the responsibilities of individual businesses to another consultant or business. It now brings about the idea of outsourcing specialization on the company. One of the areas that will benefit mostly through outsourcing is marketing and advertising. According to Alon, Jaffe, and Vianelli (2016), many entrepreneurs and managers find outsourcing as a pain point especially considering the time spend on marketing in correlation to the return on investments. Although it might seem that outsourcing a vendor especially in marketing will spend more money, the actual outright truth is that the marketers are experienced in their activities and will generate more success, which means higher revenue and lower the costs of marketing and sales.

Conclusion

To sum everything up, many companies are doing an excellent job of realizing the targets for sales with the use of conventional approaches. However, it is difficult for them to achieve sales without incurring extra costs than planned. In a company like Bee Tan Corp, a leading e-commerce platform for services, there is an increase in sales, outlining that the business is on the right track (Laudon & Traver, 2013). But, the amounts of operating losses are alarming considering that losses are paramount. It is critical for Bee Tan Corp's management to ensure proper measures to mitigate losses especially in consideration to the expenses in selling and marketing, research and development, as well as general expenses. The fact that Bee Tan Corp is spending more than half of its profits on costs seeks immediate action to ensure the livelihood of the business.

References

Alon, I., Jaffe, E., Prange, C., & Vianelli, D. (2016). Global marketing: contemporary theory, practice, and cases. Routledge.

Blocher, E. J., Stout, D. E., & Cokins, G. (2010). Cost management: A strategic emphasis. Includes index.

Chan, D. Y., & Vasarhelyi, M. A. (2018). Innovation and practice of continuous auditing. In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing Limited.

Ingram, T. N., LaForge, R. W., Williams, M. R., & Schwepker Jr, C. H. (2015). Sales management: Analysis and decision making. Routledge.

Laudon, K. C., & Traver, C. G. (2013). E-commerce. Pearson.

Luippold, B. L., Kida, T., Piercey, M. D., & Smith, J. F. (2015). Managing audits to manage earnings: The impact of diversions on an auditor's detection of earnings management. Accounting, Organizations and Society, 41, 39-54.

Marjanovic, U., Lalic, B., Majstorovic, V., Medic, N., Prester, J., & Palcic, I. (2018, August). How to Increase Share of Product-Related Services in Revenue? Strategy For Servitization. In IFIP International Confe...