Relationship between sales and production

Relationship between Production, Sales and Net Income

relationship between sales and production

The relationship between production and sales determines the difference in net income under the two costing techniques. In order to understand production. Everybody loves each other in our company” is the first lie of a dysfunctional team . The truth is that In all successful businesses there is a. Functional interdependence between production and sales leads to the need for coordination These topics are presented in relation to the logistics structure.

relationship between sales and production

As a result, you want to make sure that you have a proper sales approval process that includes pricing models and sign-offs from various departments including production. The production team also needs to feel comfortable relaying information back to the sales force. If there are to be delays or unanticipated defects, the sooner this information reaches the sales force the better.

If production is apprehensive about communicating with sales, defects or sub-par products may reach the customer. The customer is far better off hearing these issues first from the sales representatives.

relationship between sales and production

In addition, the production team can provide valuable feedback regarding the product that can greatly enhance the overall quality or cost. For example, production might have trouble dealing with a certain component or material. By communicating this issue, there may be a substitute that is more cost effective or of a higher quality. If production feels that sales is the enemy, these issues are not likely to be resolved. Ultimately, everyone in your company is on the same team. Everyone should have the same goals and the same desire for the firm's success.

This needs to be constantly hammered home at company get-togethers and it should be embedded into your company's culture. Posting signs around the office or issuing a newsletter can be informal ways to remind everyone the importance of teamwork. By understanding the necessity of teamwork, you employees will also realize the detriment of not working together.

relationship between sales and production

He has extensive experience working with small businesses on a consulting basis. Conversation Board Share your thoughts on cooperation between sales and production in small businesses. How is that relationship playing out at your shop?

Questions, Comments, Tips, and Advice Posted by: My Question, Comment or Tip: In order to understand production, sales and income relationship, the following possibilities, found in practice, have been explained: If production and sales are equal, net income will be the same under absorption costing and variable costing.

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Since the units manufactured are all sold, absorption costing, like variable costing, will treat the total fixed manufacturing overhead as an expense of the period.

No fixed manufacturing overhead flows into or out of inventory.

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Further, in this situation, stocks will neither increase nor decrease. If there is opening stock, an amount of fixed manufactured overhead will be carried forward as an expense to be included in the current period.

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But at the same time, an equivalent amount included in closing stock valuation will be deducted from the cost of production as production is equal to sales and opening stock, if any, will be equal to closing stock. Thus, under absorption costing, the net effect is that the only fixed manufacturing overhead which is included as an expense for the period will be the amount of fixed manufacturing overhead which has been incurred in the period.

Thus, production being equal to sales; net income in the two costing techniques will not differ. When production is greater than sales, net income reported under absorption costing will be greater than net income reported under variable costing. Under absorption costing, as production exceeds sales, closing stocks increase.