Determining margin potential

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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

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

Traditional

$3.80

$7.80

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

Traditional Automation

8.0

Low End Automation

10.0

High End Automation

5.0

Performance Automation

6.0

Size Automation

6.0

Reference no: EM131198839

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