Once the costs by product have been allocated, you can put revenue back in the picture and calculate a profitability dollar and percentage by product.
- Once you have all your revenue and cost information,…calculating your product profitability baseline…is just a matter of mathematics.…To calculate the product profitability baseline,…you take the total sum of the revenue…and subtract the total sum of the costs.…Here's an example.…Last year, Product A brought in $20,000 of revenue…and incurred $16,000 of costs.…If we subtract costs from revenue, we get $4,000 of profits.…You could also say that you have 20% of profits.…
You get this number by dividing…your profits by your revenue.…$4,000 divided by $20,000.…Calculating your baseline is just the starting point.…You know which products are profitable and which are not.…You also determine which are your most profitable products.…Let's continue our example by examining a set of products.…Product A, as we calculated, generated 20% in profits,…which is $4,000.…Product B is at 5%, but in total,…it represents $20,000 worth of profits.…
Product C is losing $10,000.…While there are many things…you could deduce from those pieces of information.…
- Identify the purpose of cost-accounting.
- Define product profitability.
- Determine your baseline.
- Gather revenue and cost information for your analysis.
- Connect targets with profitability.
- Build your target baseline.
- Analyze pricing.
- Calculate probable product profitability.
Skill Level Intermediate
Excel 2016: Financial Functions in Depthwith Curt Frye2h 38m Intermediate
1. Understand Company Costs Related to Products
2. Determine Your Baseline
3. Plan for the Future
Analyzing your pricing3m 1s
Next steps1m 21s
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