Business – 10.4 Finance and accounting strategy – Use of accounting data | e-Consult
10.4 Finance and accounting strategy – Use of accounting data (1 questions)
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The income statement shows revenue, cost of sales and operating expenses, allowing managers to assess profitability of each product line and identify cost pressures.
- Product pricing: By analysing the contribution margin (sales price minus variable cost) for each product, a firm can set prices that cover fixed costs and achieve target profit margins. For example, if Product A has a high contribution margin, the company may adopt a premium pricing strategy, whereas a low‑margin product may require a price reduction or value‑added features to improve profitability.
- Cost control: The breakdown of operating expenses (e.g., marketing, administration) highlights areas where costs are rising. If the income statement reveals a 15% increase in distribution costs, the firm can negotiate better rates with logistics providers or consider alternative distribution channels to protect margins.