Accounting Systems Assignment 1 Essay

Introduction:
This report will be analysing the profitability of the Active Sports business in regards to the financial performance for the month of January. The report will go in depth on how the business performed through the use of financial reports such as the balance sheet, profit and loss statement, accounts payable and receivable and inventory item history. In the second part of the report, there will be recommendations that Active Sports can implement to increase the business profitably and the efficiency of the business.

January Performance:
The profitability for Active Sports for the month of January has been pretty promising for the first month of business operations. If we analyse the balance sheet and profit and loss (both detailed and summary) Active Sports have made a gross profit of $15 743, and a with expense added in and deducted the net profit for the month of January is $9 343.
By analysing the profit and loss reports (detailed and summary) the sales income for both the accessories and clothing products, we can conclude that both were greater than COGS for each product, this is a good sign that Active Sports are generating money on all products sold to customers, However though COGS is high on the accessories products and needs to be looked at, and other alternatives to reduce this should be looked at.

Recommendations:

Pricing considerations
It’s strongly suggested that Active Sports review their pricing regularly. Changes in your marketplace may mean that you can raise prices without creating risk of a decrease in sales, which then leads to increased profits. However, Active Sports is advised due to just being recently established that any price rises should be tested before it’s made permanent.

Active Sports should look into either increasing the price of their hats and sunglasses range as the profit margin from their purchase price to what they are charging customers is not going to be profitable and or sustainable in the long run even though a profit is being generated.

Buying More Effectively
Another recommendation which is an alternative instead of increasing prices to certain products is called effective buying. Active Sports should regularly check on supplier’s prices and see if products can be bought at cheaper prices and even more efficiently. However, try to ensure that you maintain quality at the same time.

Also Active Sports can negotiate with suppliers by seeing if they can get discounts or price reductions on products if payment is early. This action which leads from the previous one should be emphasised due to the profit margin being too low as stated earlier.

Highlight most profitable customers
Price isn’t the only factor that affects profitability, the type of customers that are buying your products also make a massive difference. The Pareto principle (known as the 80/20 rule) suggests 80 per cent of profits are gained from only 20 per cent of your products / services. The same percentage of profits is also gained from the same percentage of customers. Even though this might mean letting go of less profitable customers to focus on higher profitable customers, if managed carefully can boost your profitability.

Also suggested is to joint ventures with important customers or other business, Action Sports can join in business with Beachside by giving Beachside a discount on clothing and discounting the price of hire / rental to customers of Beachside Surf School, if Beachside wants to use Action Sports as

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