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 Material Cost = [(Lowest Acceptable MTBF * 0.30) / 1000] + Trailing Edge Position Cost

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 Labor Cost = [$11.20 - (1.12 * Automation Ratings Below)] + 1.12

Customer Segment Information
Segments	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
Product	Name	Maximum Price	Minimum Material Cost	Minimum Labor Cost	Contribution Margin ($)	Contribution Margin (%)
Traditional	Able	30
Low End	Acre	25