# How to Calculate Gross Profit

Gross Profit  It is a required income statement entry that indicates total revenue minus cost of goods sold. It is the company’s profit before operating expenses, interest payment and taxes. It is also known as GROSS MARGIN. The gross profit on a product is computed as: Net Sales – Cost of Goods Sold (COGS) This concept is well understood if you are able to clearly distinguish between variable and fixed costs. VARIABLE COSTS: Materials used Direct labor Packaging Freight Plant supervisor salaries Utilities for a plant or a warehouse Depreciation expense on production equipment Machinery  FIXED COSTS: Fixed costs generally are more static in nature. They include: Office expenses such as supplies, utilities, a telephone for the office, etc. Salaries and wages of office staff, salespeople, officers and owners Payroll taxes and employee benefits Advertising, promotional and other sales expenses Insurance Auto expenses for salespeople Professional fees Rent  Variable expenses are logged as cost of goods sold. Fixed expenses are counted as operating expenses (sometimes called selling and general administrative expenses). While gross profit is a monetary entity, the margin is expressed as a percentage. It’s equally significant to track since it allows you to keep an eye on profitability trends. Gross Profit Ratio = Gross Profit / Net Sales The gross profit margin is computed as follows: When the ratio is expressed in percentage form, it is known as gross profit margin or percentage. Gross Profit / Net Sales *100 = Gross Profit Margin It is equal to the net sales minus cost of goods sold and net sales are equal to total gross sales less return inwards and discount allowed. Benefits of calculating gross profit: This ratio determines how efficiently the management utilizes labor and raw materials A company uses its gross income to fund activities such as research and development, marketing etc., which are vital for generating future sales. A prolonged decline in this margin is a cleat-cut indication of sales drop-down and ultimately earnings. Trends in this margin reflect basic pricing decisions and material costs of a company. This profit margin is an accounting measure designed to estimate the financial health of a business or industry. It may be noted that generating a profit margin alone cannot vouch for the financial health of a firm; rather the business must have sufficient cash flow in order to pay its bills and compensate employees. An entrepreneur might compare the return that would be available from a bank or another low-risk investment opportunity to that of his EXISTING profit-margin to gauge whether his startup is doing well. → Profitability...

# Demand vs. Supply

Demand vs. Supply- Parameter deciding market equilibrium The success of economic freedom of a country is naturally reflected in the form of human prosperity. Countries like India are evidencing a consistent increase in their annual GDP rates which obviously must have reduced the population percentage living below poverty line; yet this has not been accomplished and the question is, is it really something to do with the economic model or is it the bureaucracy and inefficiency the root cause for the strain in the economy? Flow of Economic Activity: This discussion aims at shedding some light on the flow of economic activity in a free market economy. The elemental players or contributors in a free enterprise market economy are individuals and firms. Individuals who own or control resources (in the form of labor, capital or natural resources), sell these resources to firms and obtain money. These resources which serve as necessary inputs in the production process add value to firms. The money received by individuals is called factor payment which is utilized to fulfill their consumption demands of goods and services. Two distinct areas of interaction exist between the individuals and firms. One is the product market where the products are bought and sold and the other being a market for production factors, where the inputs such as labor, capital and natural resources are traded. What is the activity in a product market? Fundamentally business is all about demand vs. supply. The consumers’ demand has to be met with by the manufacturers. Profit is the primary motive of any firm and the priority of a firm lies in responding to the demands of the consumer market by supplying goods and services to the potential and prospective buyers. Input costs and production technology are the determinants of supply conditions. People’s preferences and earnings decide the elasticity of market demand. The price of the product and quantity sold is a result of the interaction between demand and supply. In a product market money flows from consumers to firms and goods and services flow from firms to consumers. What happens in a factor market? The reverse of those conditions in the product market are seen in a factor market. Here the individual becomes the supplier of production factors and hence the money flows from firms to individuals and factors of production from individuals to firms. Prices and profits control the flow of money and resources through the factor market and flow of money and goods through the product market. What is a Free Market Enterprise? Added advantage of a free market enterprise is that, the effortlessness with which one can enter and exit the market. The activity flow proves advantageous to each person involved .Firms make profits, individuals are satisfied of their consumption demand for goods and services, resource owners are compensated for their services. If an individual is not able to benefit by trading in these markets, he or she is not required to do so or free to leave the market which ensures that nobody is made worse off by voluntary trade in these markets. Essentially countries have to go in for suitable economic restructuring that promotes equality and even distribution of wealth. Wall Street protest in US is a clear-cut indication of strained market economy which is a result of people’s fury against the prevailing economic...

# Recruitment

Recruitment Process Recruitment refers to that process carried on by the company to attract suitable candidates possessing the appropriate characteristics to help the organization reach its objectives. According to Byars and Rue, “recruitment involves a pool of people from which qualified candidates for job vacancies can be chosen.” The basic purpose is to develop a group of potentially qualified people. Recruitment Policy: The policies of recruitment are derived from the personnel policies of the organization where the company has to give due importance to government reservations, quotas, policies regarding sons of the soil, personnel policies of other organizations regarding merit, internal sources, social responsibility in absorbing minority sections, women etc. Sources of Recruitment: INTERNAL SOURCES: This include 1.       Present permanent employees 2.       Present temporary/ casual employees 3.       Retrenched or retired employees 4.       Dependents of deceased, disabled, retired and present employees. Why internal source is considered to be a better choice? To motivate the present employees To improve the morale aspect “Known devils are better than unknown angels”-The credibility of the present employees are well known and they can                be judged easily  Loyalty and sense of belongingness is there on the part of current employees  The employees become highly committed when they are given a chance as they tend to shoulder more responsibility  Employees’ psychological needs, economic needs for promotion and higher income can be satisfied  Cost of selection can be minimized  Similarly cost of training, induction, orientation, period of adaptability to the organization gets reduced  Trade unions are happy  Social responsibility towards the employees are discharged  Good understanding and co-operation extended by co-workers  Stability of employment is assured EXTERNAL SOURCES: 1.       Educational and training institutes 2.       Private employment agencies/exchanges 3.       Public employment exchanges 4.       Professional associations 5.       Data banks 6.       Casual applicants 7.       Similar organizations 8.       Trade Unions 9.       Social media networking sites like Facebook and Linked in offer a huge platform for both recruiters and job seekers to find the best possible match.  Why external source is considered to be a better choice? · The suitable candidates with skill set, knowledge and talent are generally available · Latest knowledge, skill, innovations or creative talent can be infused into the organization · Candidates can be selected without any pre- conceived notions or reservations · The cost shelled out for these external sources are minimum since they are placed in minimum pay scale · Expertise, excellence and experience in other organizations can be easily brought into the organization · Human resources mix can be balanced with different background, experience, skill etc. · Existing personnel will also broaden their personality · Quality of human resource will improve in the long run by development of unique culture RECRUITMENT TECHNIQUES: The management has to contact the prospective employees through various means and stimulate them for applying to the post prescribed. A. Promotions: This is a good technique to stimulate internal employees as they will be willing to shoulder more responsibilities if they are assured of promotions B. Transfer: If employees are transferred to the places of their choice, it will stimulate them C. Recommendations of the present employees: Management can contact, persuade the outsiders to apply for job in the organization through the recommendations to the candidates by the present employees, trade unions etc. D. Scouting: This is another way of recruiting where the representatives of a particular organization are sent to various sources of recruitment to motivate the prospective candidates to apply for the jobs. The representatives provide the necessary information about the company and clarify doubts of the candidates. E. Advertising: Though the popular and widely accepted way of recruitment, still it proves to be one-way communication. Newspapers, Magazines of all types, television and internet are the possible sources of advertising channels and internet marketing leads the rest. The technique of advertising should...

# Locational Attributes for a Plant Layout

Locational Attributes for a Plant Layout The location of an industrial plant plays a vital role in determining its success. Management should weigh the pros and cons of the location in terms of cost and revenue as each location might influence these variables in different proportions. Let us try to understand the need for a new facility location. Entrepreneurs interested in starting a new business venture or a small-scale enterprise has to look out for appropriate location for plant installation. Manufacturers who plan to expand their product range needs additional plant capacity Multinational corporations trying to establish their markets through subsidiaries Obsolete plants have to be shut down and new location has to be identified. The location attributes described below are fundamental in the decision to locate an industry. Although for particular firms some are more important than others, a significant shortfall in an area’s ability to provide even one of these may greatly reduce the attractiveness of that site. Labor The management will be interested in such locations where there is adequate supply of labor. Some operations need skilled labor and some unskilled. The cost of labor is an important factor to be considered as it influences labor productivity. However, low labor cost is not necessarily an advantage, if the workers are poorly educated and trained. The management has to be mentally prepared to pay for skilled labor who have the training and experience needed for the planned operation. Energy resources Electricity and water are major energy resources needed for production activities. For example, a textile mill needs to have round the clock power supply, for continuous production and a dyeing plant is in need of copious water supply. These industries will be on the look out for a location that has abundant energy resources available at low cost. Transportation The industry has to be located near the market so that the produce can quickly reach the market making the transportation costs minimum. Domestic trade heavily relies upon road transport as there are numerous service providers and there is well-developed infrastructure connecting even the remotest of locations. International trade takes place through either airways or waterways. In places like Kerala, inland waterways help in transporting merchandise within the domains of the territory. Raw materials availability Many businesses depend on materials of various types such as unprocessed raw materials for use in manufacturing and finished goods for inventory, in wholesale and retail establishments. The availability and cost, including transportation costs of these materials are critical location factors. Other Factors Other factors that influence location decisions are government regulations, climate and environmental quality of an area, soil texture, and attitudes of state and local governments’ etc. The economic viability of a project is undoubtedly enhanced by appropriate location. The location should also conform to environmental protection laws to maintain the ecobalance of that particular habitat. Organizations are expected to dispose of with the effluents in a systematic manner and this has to be kept in mind while choosing a location. The GEMBA Walk: A gemba (and sometimes genba) walk is the term used to describe personal observation of work – where the work is happening. The original Japanese term comes from gembutsu, which means “real thing.” It also sometimes refers to the “real...

# Nature and Characteristics of Management

Nature and Characteristics of Management Some good definitions on Management: According to Harold Koontz, “Management is the art of getting things done through and with people in formally organised groups.”- in his book “The Management Theory Jungle”. According to Henri Fayol, “To manage is to forecast and to plan, to organise, to command, to co-ordinate and to control.”- in his book “Industrial and General Administration”. According to Peter Drucker, “Management is a multi-purpose organ that manages business and manages managers and manages workers and work.”- in his book “The Principles of Management”. According to Mary Parker Follet, “Management is the art of getting things done through people.” According to William F.Glueck, Management is the effective utilization of human and material resources to achieve the enterprise objective.   Concepts of Management: Management as an Activity Leader is the Manager Team consist of the Subordinates Synergy – Leads to enhanced performance The activities of management are:  Interpersonal activities  Decisional activities  Informative activities Management as a Process Management is a continuous process involving interaction of people and integration of human, physical and financial resources. Management as an Economic Resource Management is an important factor of production like Land Labor and Capital Management as a Team  The team comprises of Top level management- CEO ,CHAIRMAN,PRESIDENT and the like Middle level management-Department Heads Low level management-Work force or the Employees       Pic Courtesy: Charismatic Leaders   Management as an Academic Discipline Getting a management degree has become the order of the day and many reputed educational institutions are coming out with a new discipline in management course every day that rewards an exciting and challenging career for the graduates. Management professionals are the need of the hour for corporate companies to manage the dynamic environment that poses very many challeneges.  Management as a Group  Chief executive (managing director), Departmental heads Supervisors make up the management group.   Nature and Characteristics of Management   1. Management is goal-oriented: The ultimate purpose of management is to achieve certain goals over a period of time. The goals must be realistic and achievable that ensure  efficient utilization of the resources and satisfy the enterprise objectives. 2. Management is universal: Where ever  there is a business activity or non-business activity, management comes into the fore. Be it a small family function or a multi crore business activity, you need people and other resources to make it a success. 3. Management is an Integrative Force: Team work creates synergy and accomplishment of the firm’s objectives by the unified and co-ordinated efforts of all the individuals working for that firm. Note: 1+1=2, we all know that . Have you heard of 1+1>2 , Yes, synergy is the combined effort of all the people working as a team that leads to enhanced performance levels facilitating the completion of objectives in a short span of time. Dhirubhai Ambani was very popular for completing tasks in lightning speed. This was possible only because he had able administrators who shared the same kind of wavelength. 4. Management is a Social Process: You can become an excellent manager without becoming a good leader, but you cannot be an excellent leader without becoming a good manager. This explains it all. Management is a social process since it involves people and their inter personal relationship. A good manager succeeds in motivating , guiding and extracting work from people working under him. 5. Management is multidisciplinary: Management takes inspiration from  disciplines like engineering,   sociology, psychology, economics, anthropology etc. 6. Management is a continuous Process: Management is a dynamic and an on-going process. A business has to die on its own. 7. Management is Intangible:  The success of management can only be measured...