# (Answered) : I need help with the margin potential table at the bottom,

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I need help with the margin potential table at the bottom, pictures that go with table posted below.

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Margin Analysis

Healthy margins, the difference between a product’s manufacturing cost and its price, are critical to company success. The Margin Analysis will help the Research & Development Department understand the cost of material, and the Production Department understand the effect automation has on labor costs. It will also demonstrate to the Marketing Department the importance of adequate pricing, and to the Finance Department the upper limits of profitability.

You will need:

The Production Analysis report (page 4) of the Capstone Courier for Round 0 (Pictures of pages posted above)

The Segment Analysis reports (pages 5-9) of the Capstone Courier for Round 0 (Pictures of pages posted above)

Determining Current Margin

In this activity you will calculate the Contribution Margin in dollars per unit and as a percentage of the price using the information in the Production Analysis report

marginAnalysisImg.png

* 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 Margins Activity

In the table below enter each product’s price, material cost, labor cost, 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.

Current Margin
Product Name Price Material Cost Labor Cost Second Shift (Y/N) Contribution Margin (\$) Contribution Margin (%)
Traditional Able 28 11.59 7.49 N 8.92 32
Low End Acre 21 7.81 7.12 Y 6.07 29
High End Adam 38 15.98 8.57 N 13.45 35
Performance Aft 33 15.87 8.57 N 8.56 26
Size Agape 33 13.62 8.57 N 10.81 33
Determining Margin Potential

Finding the maximum amount of profit you can get from one unit of a product is called Margin Potential. It’s useful for a company when making a decision about whether to go into production or not. In it’s simplest form, it is calculated as:

Margin Potential = Maximum Price possible – Minimum Unit Costs possible

Price

Go to the Buying Criteria on the Segment Analysis pages of The Capstone Courier for Round 0 to find the maximum permitted price for each segment (pictures of pages posted above)

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

Material Position Component Costs
Trailing Edge Cost Leading Edge Cost
Low End \$1.00 \$5.00
High End \$6.00 \$10.00
Performance \$4.50 \$8.50
Size \$4.50 \$8.50
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

Segment Automation level (out of 10)
Low End Automation 10.0
High End Automation 5.0
Performance Automation 6.0
Size Automation 6.0
Margin Potential
Product Name Maximum Price Minimum Material Minimum Labor Contribution Margin (\$) Contribution Margin (%)
Low End Acre
Performance Aft

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