Skip top navigationcapstone logoWelcome back Emily O'Connell. $|$ Industry ID : C$152271|$ Title: $(24$FS$-$Full$)$ BUSINESS STRATEGY $(004)$

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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

Situation$\_$Analysis$\_$Margin

$*$ 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

CalculatingSkip top navigation

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Welcome back Emily O'Connell. $|$ Industry ID : C$152271|$ Title: $(24$FS$-$Full$)$ BUSINESS STRATEGY $(004)$

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Getting Started

Skip the Getting Started navigation

Recommended

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Introductory

Lesson

The Guide

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Consumer Report

Consumer Report

The Consumer Report illustrates the aspects of your product offerings that are important to your consumers. In this exercise, you will $$grade$$ your product based upon how well it is meeting the customer expectations. Keep in mind that the customer buying criteria represents the $$perfect product$$ in the eyes of the consumer. However, supplying the perfect product may not always be feasible or cost effective for your company.

You will need:

The Buying Criteria from the Segment Analysis pages $($pages $5-9)$ in the Round $0$ Capstone Courier.

In the customer buying criteria $($located in the top left$-$hand corner of the segment analysis reports$),$ you will find a range for both price and reliability $($MTBF$)$ that customers find acceptable.

In the $$Top Products$$ section $($located at the very bottom of the segment analysis report$),$ you will find your product$$s current price and MTBF$.$

Based on where your price and reliability $($MTBF$)$ fall within that range, you will assign a $$grade$.$ For example, if the list price of your product is $$28$ while the acceptable range is $$20-$$$30,$ then it would fall in the top of the range and earn a $$C$$ grade.

The chart below breaks down the price and reliability ranges from the customer buying criteria for the Traditional segment with a corresponding grade. You will need to do a similar analysis for each segment.

To score an A To score a B To score a C

Price$*$ $$20\mathrm{.}00-$ $$23\mathrm{.}33$ $$23\mathrm{.}34-$ $$26\mathrm{.}67$ $$26\mathrm{.}67-$ $$30\mathrm{.}00$

Reliability$*17,334-19,00015,667-17,33314,000-15,666$

Age $0\mathrm{.}5$ year away from ideal $1$ year away from ideal $1+$ years away from ideal

Positioning $0\mathrm{.}5$ away from ideal $0\mathrm{.}6-1$ away from ideal $1$ away from ideal

Awareness $80\%-100\%51\%-80\%0\%-50\%$

Accessibility $80\%-100\%51\%-80\%0\%-50\%$

Overall $($The top two buying criteria is listed in the Capstone Courier Segment Analysis reports$)$ The top two buying criteria for the segment were rated A and the awareness and accessibility were rated at least a B$.$ The top two buying criteria for the segment were rated B and the awareness and accessibility were rated at least a B$.$ If you are not able to meet the criteria to score an A or B$,$ then your score will be a C$.$

$*$Keep in mind that consumers want a low priced product with high reliability, so that will impact the "grade" that is assigned to 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.

Incomplete

Current Margin

Product Name Price Material Cost Labor Cost Second Shift $($Y$/$N$)$ Contribution Margin $($$$)$ Contribution Margin $(\%)$

Traditional

Eat

$28\mathrm{.}00$

$11\mathrm{.}59$

$7\mathrm{.}49$

N

$8\mathrm{.}92$

$3\mathrm{.}3$

Incorrect value entered

Low End

Ebb

$21\mathrm{.}00$

$7\mathrm{.}81$

$7\mathrm{.}12$

Y

$6\mathrm{.}07$

$0$

High End

Echo

$38\mathrm{.}00$

$15\mathrm{.}98$

$8\mathrm{.}57$

N

$13\mathrm{.}45$

Performance

Edge

$33\mathrm{.}00$

$15\mathrm{.}87$

$8\mathrm{.}57$

N

$8\mathrm{.}56$

Size

Egg

$33\mathrm{.}00$

$13\mathrm{.}62$

$8\mathrm{.}57$

N

$10\mathrm{.}81$

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