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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

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

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