eing able to calculate a healthy Margin Analysis will help the Research & Development Department understand how to change the cost of materialand the Production Department understand how to change the cost of labor.

You will need:

• The Production Analysis report(page4) of the Capstone Courier for Round 0
• The Segment Analysis reports (pages 5-9) of the Capstone Courier for Round 0

Determining Current 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 Calculating MarginActivity

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
Low End
High End
Performance
Size

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 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
Low End
High End