Margin Analysis Margin Analysis Being able to calculate a healthy Margin Analysis will help the Research & Development Department understand how to change the cost of material and the Production Department understand how to change the cost of labor. You will need: The Production Analysis report (page 4) of the Capstone Courier for Round 0 The Segment Analysis reports (pages 5-9) of the Capstone Courier for Round 0 Determining Current Margin 2nd Shift & Over- time Units Sold MTBF Name Able Acre Adam Aft Agape Primary Segment Trad Low High Pfmn Size 999 1.763 366 358 314 Unit Inven tory 189 39 40 78 62 Revision Date 11/21/2010 5/25/2009 4/18/2012 6/30/2011 5/25/2011 Age Dec 31 3.1 17500 4.6 14000 1.7 23000 25 25000 26 19000 Pfmn Size CoordCoord Price 5.5 14.5 $28.00 3.0 17.0 $21.00 8.0 12.0 $38.00 9.4 15.5 $33.00 4.0 11.0 $33.00 Material Cost $11.59 $7.81 $15.98 $15.87 $13.62 Labor Cost S7.49 $7.12 $8.57 S8.57 $8.57 Contr. Marg 29% 27% 33% 23% 30% Auto mation Next Round 4.0 5.0 3.0 3.0 3.0 30% 0% 0% 0% Capacity Next Plant Round_Utiliz 1,800 66% 1.400 129% 900 45% 600 73% 600 63% * The product details are for example only. Your product names and data may differ, but the process to calculate margins is identical. Useful formulas: Contribution Margin($) = Price - (Material Cost + Labor Cost) Margin Percentage (%) = Contribution Margin/Price Calculating Margin Activity In the table below enter each product's price, material cost, and labor cost found in your report, and note whether or not a second shift was used (Y/N). Then, use the values you entered to calculate the Contribution Margin and the Margin Percentage. Current Margin Material Cost Second Shift Labor Cost (Y/N) Contribution Margin ($) Contribution Margin (%) Product Name Price Traditional Able Low End Acre High End Adam Performance Aft Size Agape The Round 0 Capstone Courier Determining Margin Potential Finding the maximum amount of profit you can generate from one unit of a product is called Margin Potential. This is useful for a company when making a decision about whether to go into production or not. In its simplest form, you can calculate Margin Potential as: Margin Potential = Maximum Price - Minimum Unit Costs Price Use the information table below to find the maximum price that customers deem acceptable. You can find this in the Customer Buying Criteria for each segment. Minimum Material Cost Calculate the minimum Material Cost per segment using the following equation and table below: Minimum Labor Cost Calculate the minimum Labor Cost for each segment. Assume a base labor cost of $11.20 ($11.20 is a rough estimate of labor cost used solely to illustrate the Margin Potential Concept). Minimum Material Cost = [(Lowest Acceptable MTBF * 0.30) / 1000] + Trailing Edge Position Cost Minimum Labor Cost = ($11.20 - (1.12 * Automation Ratings Below)] + 1.12 Customer Segment Information Trailing Edge Material Cost Leading Edge Material Cost Lowest Acceptable MTBF Maximum Price Automation Level (out of 10) Traditional $3.80 $7.80 14,000 $30.00 8.0 Low End $1.00 $5.00 12,000 $25.00 10.0 High End $6.00 $10.00 20,000 $40.00 5.0 Performance $4.50 $8.50 22,000 $35.00 6.0 Size $4.50 $8.50 16,000 $35.00 6.0 Margin Potential Maximum Price Minimum Material Cost Minimum Labor Cost Contribution Margin ($) Contribution Margin (%) Product Name Traditional Able Low End Acre High End Adam Performance Aft Size Agape