Determining Margin Potential Finding the maximum amount of profit you can get fr

Question

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 Foundation FastTrack 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

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

Material Position Component Costs Trailing Edge Cost Leading Edge Cost Low Tech $1.50 $8.50 High Tech $4.00 $10.00

Explanation / Answer

Determining Margin Potential Finding the maximum amount of profit you can get fr

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