Determining Margin Potential

Finding the maximum amount of profit you can get from one unit of a product is called Margin Potential. This is useful for a company when making a decision about whether to go into production or not. In its simplest form, it is calculated as: Margin Potential = Maximum Price - Minimum Unit Costs

Price

Use the customer segment table to find the maximum price that customers deem acceptable. You can find this in the Customer Buying Criteria for each segment.

Minimum Material Cost

Calculate the minimum Material Cost per segment using the minimum material cost equation: Minimum Material Cost = [(Lowest Acceptable MTBF * 0.30) / 1000] + Trailing Edge Material 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

You will need:

• The Production Analysis report (page 4)
• The Segment Analysis reports (pages 5-6)

Customer Segment Information Trailing Leading Edge Edge Material Material Cost Cost Low $1.50 $8.50 Tech High $4.00 $10.00 Tech Lowest Acceptable MTBF Maximum Price Automation Level (out of 10) 14,000 $35.00 10.0 17,000 $45.00 6.0 Contribution Contribution Margin ($) Margin (%) Margin Potential Minimum Minimum Maximum Material Labor Product Name Price Cost Cost Low 0 Able 0 Tech 0 High Able 0 0 0 Tech Top Foundation Production Analysis Fast Track F130527_012 Round: 0 December 31, 2021 Production vs Capacity F130527_012 Andrews Baldwin Chester Digby Erie Ferris 0 100 200 300 600 700 800 900 1,000 1.100 1,200 400 500 Capacity Production Andrews 1.287 Baldwin 1.287 Chester 1,287 Digby 1,287 Erie 1,287 Ferris 1.287 Units Produced Production Information Unit Primary Units Inven Age Pfmn Size Name Segment Sold tory Revision Date Dec.31 MTBF Coord Coord Price 2nd Shift Auto & mation Capacity Material Labor Contr. Over- Next Next Plant Cost Cost Marg. time Round Round Utiliz. Able Low 1.200 87 11/21/2018 3.1 21000 6.4 13.6 $34.00 $16.17 $10.11 20% 83% 3.0 800 181% Baker Low 1,200 87 11/21/2018 3.1 21000 8.4 13.6 $34.00 $18.17 $10.11 20% 63% 3.0 800 181% Cake Low 1,200 87 11/21/2018 3.1 21000 6.4 13.8 $34.00 $16.17 $10.11 20% 8396 3.0 800 161% Daze Low 1.200 87 11/21/2018 3.1 21000 8.4 13.8 $34.00 $16.17 $10.11 20% 63% 3.0 800 161% Eat Low 1.200 87 11/21/2018 3.1 21000 6.4 13.6 $34.00 $16.17 $10.11 20% 83% 3.0 800 181% Fast Low 1.200 87 11/21/2018 3.1 21000 8.4 13.6 $34.00 $18.17 $10.11 20% 63% 3.0 800 161% FOUNDATION FAST TRACK Page 4 Foundation Low Tech Market Segment Analysis Fast Track F130527_012 Round: 0 December 31, 2021 Accessibility F130527_012 Low Tech Andrews Baldwin Chester Digby Low Tech Statistics Total Industry Unit Demand 5,040 Actual Industry Unit Sales 5.040 Segment % of Total Industry 70.0% Next Year's Segment Growth Rate 10.09 Low Tech Customer Buying Criteria Expectations Importance Price $15.00 - 35.00 4196 2 Age Ideal Age - 3.0 29% 3. Reliability MTBF 14000-20000 2196 4. Ideal Position Pfmn 4.8 Size 15.2 9% Perceptual Map for Low Tech Segment Perceptual map (at end of this year) Erie 1. Ferris 0% 20% 40% 60% 80% 100% Actual vs Potential Market Share 2021 F130527_012 Low Tech 16% 14% 12% 10% 8% 6% 4% 2% 8 0% 4 Andrews Baldwin 2 O Actual Potential 10 Performande 12 13 14 15 16 18 20 Top Products in Low Tech Segment Stock Out Units Market Sold to Revision Name Share Seg Date Able 1796 840 11/21/2018 Baker 17% 840 11/21/2018 Cake 1796 840 11/21/2018 Daze 17% 840 11/21/2018 Eat 17% 11/21/2018 Fast 1796 840 11/21/2018 FOUNDATION FAST TRACK Pfmn Size Coord Coord 8.4 13.6 6.4 13.6 6.4 13.6 6.4 13.6 8.4 13.6 6.4 13.6 List Price $34.00 $34.00 $34.00 $34.00 $34.00 $34.00 Cust. Age Promo Aware- MTBF Dec.31 Budget ness 21000 3.10 $1,000 55% 21000 3.10 $1,000 5596 21000 3.10 $1.000 55% 21000 3.10 $1,000 5596 21000 3.10 $1.000 55% 21000 3.10 $1,000 55% Cust. Sales Access- Budget ibility $1,000 40% $1,000 4096 $1,000 4096 $1,000 40% $1,000 40% $1,000 40% Dec. Cust. Survey 18 18 18 18 18 18 Page 5 840 10R High Tech Market Segment Analysis Fast Track F130527_012 Round: 0 December 31, 2021 Accessibility F130527_012 High Tech Andrews High Tech Statistics Total Industry Unit Demand Actual Industry Unit Sales Segment % of Total Industry Next Year's Segment Growth Rate 2.160 2.160 30.0% Baldwin 20.0% Chester Digby Erie Ferris 2. 3. 4. High Tech Customer Buying Criteria Expectations Importance Ideal Position Pfmn 7.4 Size 12.6 33% Age Ideal Age = 0.0 29% Price $25.00 - 45.00 2596 Reliability MTBF 17000-23000 13% Perceptual Map for High Tech Segment Perceptual map (at end of this year) 0% 20% 40% 60% 80% 100% Actual vs Potential Market Share 2021 F130527_012 High Tech 16% G 14% 12% 10% 8% 6% 4% 2% 0% Digby Erie Femis Actual Potential Performance 16 17 18 19 20 0 8 9 10 12 13 14 Top Products in High Tech Segment Stock Out Units Market Sold to Revision Name Share Seg Date Able 17% 360 11/21/2018 Baker 179 360 11/21/2018 Cake 17% 360 11/21/2018 Daze 17% 360 11/21/2018 Eat 17% 360 11/21/2018 Fast 17% 380 11/21/2018 FOUNDATION FAST TRACK Pfmn Size Coord Coord 8.4 13.6 6.4 13.6 6.4 13.6 6.4 13.6 6.4 13.6 13.6 Cust. List Age Promo Aware- Price MTBF Dec.31 Budget ness $34.00 21000 3.10 $1,000 55% $34.00 21000 3.10 $1,000 55% $34.00 21000 3.10 $1.000 55% $34.00 21000 3.10 $1,000 55% $34.00 21000 3.10 $1,000 5596 $34.00 21000 3.10 $1.000 55% Cust. Sales Access- Budgetibility $1,000 41% $1,000 41% $1,000 4196 $1,000 4196 $1,000 41% $1,000 41% Dec. Cust. Survey 16 18 18 16 18 18 8.4 Page 6