For the target users that SDBS is meant to serve, short-term profitability is monitored by keeping a watch over contribution earned as fixed costs are not likely to change quickly. [In the telecom sector, as an example, the fixed costs are seen to increase by 10% to 20% every month because of expansion of network comprising towers and switches – but this is not the case in most of the SMEs].

SDBS thus aims to generate summary and detailed reports by deriving contribution and maintaining the data accordingly. The fixed costs come from the financial accounting, payroll and depreciation calculations in the fixed assets systems.

Contribution is defined as the difference between net sales realization and actual variable cost of sales at the enterprise level. Net sales realization is the gross sales less discounts, sales commissions, distribution costs, taxes, transportation charges, cost of sales returns etc.

Actual Variable Cost of Sales should equal the Actual Variable Cost of Production if there is no inventory fluctuation. However, in reality there is always an inventory fluctuation – either up or down. The finished goods and in-process inventory goes up when production is more than sales and the finished goods and in-process inventory depletes when converse is the case, i.e. sales is more than the production. Inventory adjustment is valued at Standard Variable Cost of Production of all items at all stages. It is seldom a good thing to have too much inventory. Just-in-time inventory management requires a strong procurement system coupled with a good vendor network and proper material requirement planning (MRP). SDBS helps the management in all these areas.

If the contribution is not sufficient to meet the fixed costs, the business goes into loss. To maximize profits in the short-term, therefore, we must maximize contribution, assuming that fixed cost will nearly remain fixed. MCRS reports all of the relevant data and allows drilling down to details. It reports variances at all levels to focus attention on areas that need improvement. The variances compare price, consumption, quality & timeliness.

The fixed costs can also be monitored by introduction of a budgetary reporting system. SDBS allows strict or flexible budgeting for both revenue and capital items.