product line profitability

So once we take into account all of our indirect costs, our profit margin on the economy car falls considerably. View our pricing guide or login to see prices.

The profit margin is now only 15.21%.

Profitability analysis isn’t some mystic math formula.

Which of our products truly contribute the most to our bottom line? When we take the sales price of 48,000, minus the direct cost, all divided by the sales price, we get a gross margin of 46.88%, almost 47%. When you use Glew for your reporting and analytics, you have access to a comprehensive view of every product’s performance, profitability, and much more.
Over the years I have worked with a number of companies in the consumer products arena. Download the files the instructor uses to teach the course.

Now we see that the true highly profitable product for this firm is the sports car, something that wasn't obvious when we looked only at the direct costs. Now we've seen how to evaluate product line profitability across a firm using ABC. Customer Profitability Analysis is a tool from managerial accounting that shifts the focus from product line profitability Cost of Goods Manufactured (COGM) Cost of Goods Manufactured, also known to as COGM, is a term used in managerial accounting that refers to a schedule or statement that shows the total production costs for a company during a specific period of time. To view and download the full document, please go here: http://flevy.com/brows… BAB280TN Subject category: Finance, Accounting and Control Access this item. Our indirect costs plus direct costs total $40,700 for the economy car and 51,500 for the sports car. We used a simplified example here with just two products, but the same basic technique could be applied to 200 products. Follow along and learn by watching, listening and practicing.Management accountants help executives make smarter, more informed business decisions. When we look at how this does for the sports car, we see the margins are still very strong at 40%. So I'm going to go through and update our profit margins based on our indirect costs.

This is simply multiplying the gross margin % of each product by the annual turnover rate of that product. And activity-based costing gives us a clean and effective way to evaluate profitability after taking into account direct and indirect costs of production.

We sell the economy car for $48,000. Product Line Strategy and Profitability Even if there is a defined business strategy, drive for revenue growth without disciplined execution can create a complex product portfolio sucking resources and profitability from the business, and potentially creating supply … What this shows is that after taking into account our indirect costs which are higher for the economy car than they are for the sports car, the margin flips.

By providing advice and frequent, detailed internal updates, they help clarify their firm's current financial standing—and suggest how to boost profits going forward.
It is not common that they also develop balance sheets for those same business units. And the key is making sure that we go through and break down all of our direct costs and indirect costs and then assign them to products based on the drivers in question. Now let's look at what happens if we take a bigger and broader view of cost which incorporate both our direct costs that traditional costing would take into account and indirect costs as revealed by activity-based costing. For the sports car, the profit margin falls as well, but it's still 20, almost 21%. Which of our products truly contribute the most to our bottom line? This Slideshare presentation is a partial preview of the full business document. One of the critical topics of discussion is always product line profitability. But despite the higher sales price on the sports car, it's just not quite as profitable a product. He covers topics such as performing variance analysis, doing activity-based costing (ABC), and using ratio analysis. View usage. Your product line profitability analysis gives you a good jumping-off point so that you can learn what you need to know. So when we look at the direct costs only for the economy car, what we see is that those costs total $25,500.

Skip to main content LinkedIn Learning Search skills, subjects, or software Download courses using your iOS or Android LinkedIn Learning app.- [Instructor] All business leaders understand the importance of building profitable products. No reviews Write a review. So we have our activity-based costing analysis done for Acme Inc., the car company. the turnover rate).Over the years I have worked with a number of companies in the consumer products arena. Teaching note -Reference no. The real opportunity in terms of dollars is that gross margin and how many times per year you generate those dollars (e.g. And sometimes ABC can reveal surprising insights to us that weren't obvious at first. I'm in the 03_04_Begin Excel file.

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