Businesses that produce and sell a product, such as a good or service, are often composed of multiple departments. Each department may be responsible for a particular aspect of producing and selling the product. For example, a business that sells office chairs may have a department that designs the office chairs, a department that purchases the raw materials (e.g., screws, plastic, fabric, etc.) for the office chairs, a department that manufactures the office chairs, a department that sells the office chairs, and a financial department that ensures that the business is profitable. The division of the workload allows each employee to specialize in an aspect of the producing and selling of the product, thereby ensuring that the business is financially viable.
The purchasing department and sales department of a business have a particular impact on the financial viability of the business. For example, in the purchasing department, the profit that is obtained from selling a product is at least partially dependent on the raw materials required to manufacture the product. Specifically, if the purchasing department does not negotiate well with wholesalers, then either the product must be sold at a higher price or the profit of the business decreases. Therefore, if a contract for the product is signed before the raw materials are obtained to create the product, then the profit of the product is directly dependent on the amount that the business must pay for the raw materials.
Similarly, a sales department often has authority to negotiate with clients. For example, salespeople that work on commission may be given a percentage of the net profit of a sale, the amount of the sale above a certain minimum, etc. Thus, a salesperson may have an incentive to sell the product with a higher purchase price. Conversely, if a potential customer will not purchase the product at a set initial purchase price, then the salesperson may offer a lower purchase price in order to entice the customer.
Typically, at the end of the quarter, a business has a financial department review the costs and sales of the product in order to determine the profitability of the selling the product. If the product is not profitable, then the business may decide to stop selling the product, change in personnel, sell the product at a higher price, change the wholesalers, etc.