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 O The Segment Analysis reports (pages 5-9) of the Capstone Courier for Round 0 Determining Current Margin 2nd Shift & Unit Inven Units Over- time 0% Auto mation Next Round 189 4.0 Tizimin Primary Segment Trad Low High Pfmn Size Name Able Acre Adam Aft Agape 39 999 1.763 366 358 314 3.0 Age Pfmn Size Dec 31 MTBF CoordCoordPrice 3.1 17500 5.5 14.5 $28.00 1.6 14000 17.0 $21.00 1.7 23000 8.0 12.0 $38.00 2.5 25000 9.4 15.5 $33.00 26 19000 4.0 11.0 $33.00 Revision Date 11/21/2010 5/25/2009 4/18/2012 6/30/2011 5/25/2011 Capacity Next Plant Round Utiliz 1,800 66% 1.400 129% 900 45% 600 73% 600 63% Material Labor Cost_Cost_ $11.59 $7.49 $7.81 $7.12 $15.98 $8.57 $15.87 $8.57 $13.62 $8.57 Contr. Marg. 29% 27% 33% 23% 30% 40 3.0 3.0 * The above product details are for example only. Your product names and data may differ, but the process to calculate margins is identical. Useful formulas: Contribution Margin($) = 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. Incomplete Current Margin Product Name Price Material Cost Labor Cost Second Shift (Y/N) Contribution Margin ($) Contribution Margin (%) Traditional Baker Low End Bead Bid High End Performance Bold Size Buddy 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 $10.00 20,000 $40.00 5.0 High End Performance $6.00 $4.50 $4.50 $8.50 22,000 $35.00 6.0 Size $8.50 16,000 $35.00 6.0 Margin Potential Maximum Price Minimum Material Cost Contribution Margin Minimum Labor Cost Product Name ($) Contribution Margin (%) Traditional Bakel Low End Bead High End Bid Performance Bold Size Budd 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 O The Segment Analysis reports (pages 5-9) of the Capstone Courier for Round 0 Determining Current Margin 2nd Shift & Unit Inven Units Over- time 0% Auto mation Next Round 189 4.0 Tizimin Primary Segment Trad Low High Pfmn Size Name Able Acre Adam Aft Agape 39 999 1.763 366 358 314 3.0 Age Pfmn Size Dec 31 MTBF CoordCoordPrice 3.1 17500 5.5 14.5 $28.00 1.6 14000 17.0 $21.00 1.7 23000 8.0 12.0 $38.00 2.5 25000 9.4 15.5 $33.00 26 19000 4.0 11.0 $33.00 Revision Date 11/21/2010 5/25/2009 4/18/2012 6/30/2011 5/25/2011 Capacity Next Plant Round Utiliz 1,800 66% 1.400 129% 900 45% 600 73% 600 63% Material Labor Cost_Cost_ $11.59 $7.49 $7.81 $7.12 $15.98 $8.57 $15.87 $8.57 $13.62 $8.57 Contr. Marg. 29% 27% 33% 23% 30% 40 3.0 3.0 * The above product details are for example only. Your product names and data may differ, but the process to calculate margins is identical. Useful formulas: Contribution Margin($) = 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. Incomplete Current Margin Product Name Price Material Cost Labor Cost Second Shift (Y/N) Contribution Margin ($) Contribution Margin (%) Traditional Baker Low End Bead Bid High End Performance Bold Size Buddy 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 $10.00 20,000 $40.00 5.0 High End Performance $6.00 $4.50 $4.50 $8.50 22,000 $35.00 6.0 Size $8.50 16,000 $35.00 6.0 Margin Potential Maximum Price Minimum Material Cost Contribution Margin Minimum Labor Cost Product Name ($) Contribution Margin (%) Traditional Bakel Low End Bead High End Bid Performance Bold Size Budd