Kế toán, kiểm toán - Profitability analysis

Profitability AnalysisAppendix BMcGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.Absolute ProfitabilityAbsolute profitability measures the impact on the organization’s overall profits of adding or dropping a particular segment such as a product or customer – without making any other changes.Computing Absolute ProfitabilityFor an Existing SegmentCompare the revenues that would be lost fromdropping that segment to the costs that would be avoided.For a New SegmentCompare the additional revenues from addingthat segment to the costs that would be incurred.Relative ProfitabilityRelative profitability is concerned with ranking products, customers, and other business segments to determine which should be emphasized in an environment of scarce resources.Relative ProfitabilityManagers are interested in ranking segments if a constraint forces them to make trade-offs among segments.In the absence of a constraint, all segments that are absolutely profitable should be pursued.Relative ProfitabilityProfitabilityindexIncremental profit from the segmentAmount of the constrained resources required by the segment=Incremental profit from the segment isthe absolute profitability of the segment.Project Profitability IndexProjectprofitabilityindexNet present value of the projectAmount of investmentrequired by the project=The project profitability index is used when a company has more long-term projects with positive net present values than it can fund.From Chapter 13Volume Trade-Off DecisionsProfitability indexfor a volumetrade-off decisionUnit contribution marginAmount of the constrained resourcerequired by one unit=Volume trade-off decisions need to be made when a company must produce less than the market demands for some products due to the existence of a constraint.Volume Trade-Off Decisions – An ExampleMatrix, Inc. produces the following three products:A total of 2,700 minutesVolume Trade-Off Decisions – An ExampleMatrix, Inc. produces the following three products:If only 2,200 minutes of machine constrainttime are available, which products shouldbe produced in what quantities?A total of 2,700 minutesFirst, we calculate the profitability index for each product.Most profitableNext mostprofitableVolume Trade-Off Decisions – An ExampleVolume Trade-Off Decisions – An ExampleNext, we prepare the optimal production plan. Maximum contribution is $8,600 per week.Volume Trade-Off Decisions – An ExampleLast, we compute the total contribution marginearned under the optimal production plan.Pricing New ProductsThe price of a new product should at least cover the variable cost of producing it plus the opportunity cost of displacing the production of existing products to make it.Selling priceof newproductVariable costof the newproductOpportunity costper unit of theconstrainedresourceAmount of theconstrainedresource requiredby a unit of thenew product≥+×End of Appendix B