Reference no: EM131198839

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