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
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Traditional
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$3.80
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$7.80
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Low End
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$1.00
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$5.00
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High End
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$6.00
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$10.00
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Performance
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$4.50
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$8.50
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Size
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$4.50
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$8.50
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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
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Traditional Automation
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8.0
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Low End Automation
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10.0
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High End Automation
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5.0
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Performance Automation
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6.0
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Size Automation
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6.0
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