Calculation of marginal profit. What formula should I use? What is margin? In what cases is marginal profit not important?

In the process of financial and production planning of an enterprise for the future, the determination and analysis of such indicators as break-even level and marginal profit.

Break-even analysis

The break-even point is understood as the level of production (sales) at which a zero level of profit is ensured, i.e. break even implies equality of total costs and income received. In other words, this is the maximum level of production, below which the enterprise suffers losses.

The concept of the break-even point is well explained, so we will only briefly dwell on the main points of its definition. Let us dwell in more detail on the modifications of this indicator, taking into account the need to incur costs from profits and fulfill debt obligations.

As part of determining the break-even level, all enterprise costs are divided into two groups: conditionally variable (change in proportion to changes in production volumes) and conditionally constant (do not change when production volumes change).

It should be noted that the division of costs into variable and fixed, especially with regard to overhead (overhead) costs, is rather conditional. In reality, there is a group of expenses containing components of both variables and fixed costs- the so-called mixed costs. The latter relate to variable costs in terms of the share of the variable component and to constant costs in terms of the share of fixed costs.

According to PBU (rules accounting), list and composition of variables and constants in general production costs are installed by the enterprise. In the classic version, the break-even point is calculated based on a simple ratio based on the balance of revenue, assuming zero profit. IN in value terms, for the production (sales) of multi-product products:

Break-even point = Fixed costs / (1 - Share of variable costs)

where, share of variable costs = Variable costs / Volume of production (sales)

In quantitative terms, for the production (sales) of mononomenclature (or average) products:

Break-even point = Fixed costs / Input per unit of output

where, invested income per unit of production = Price - Variable costs per unit of production; Fixed and variable costs are costs attributable to the cost of production.

Accordingly, the break-even level calculated in this way reflects the level of production that must be ensured to reimburse all costs that form the cost of production.

However, the break-even point, calculated according to the above classical option, does not provide a sufficiently complete picture of what level of production (sales) the enterprise needs to ensure in order to cover all the necessary costs. Indeed, in practice, an enterprise must not only reimburse production costs, but also, for example, maintain facilities social sphere, pay off loans, etc. In order to take into account the need to compensate for all current costs, the concept of “real break-even point” is introduced, which is calculated:

Real break-even point = All fixed costs / (1 - Variable cost share)

where, share of variable costs = All variable costs / Production volume

The break-even point calculated in this way reflects the level of production that must be ensured in order to compensate for all, and not just those included in the accounting cost, the necessary costs of the enterprise. In the case of existing debt obligations that need to be repaid within a certain time frame, the enterprise must ensure the corresponding volume of production (sales) and incoming cash flows.

To take into account the need to calculate debt obligations, the concept of debt break-even point is introduced:

Debt break-even point = Volume of required payments / (1 - Variable cost share)

where, the volume of required payments = Fixed costs + Costs from profit + Current part of the debt; share of variable costs = All variable costs / Production volume

The given debt break-even point takes into account the need to cover both all current costs and settlement of current debt, i.e. most fully reflects the required level of production (sales).

In reality, when calculating the required level of production at an enterprise, it is of interest to analyze and compare all the above break-even indicators and, based on their analysis, develop appropriate management decisions.

Marginal profit

In addition to the break-even level, an important indicator for financial and production planning is marginal profit. Under marginal profit refers to the difference between income received and variable costs. Marginal analysis is of particular importance in the case of multi-item production.

Marginal profit per unit = Price - Variable costs

Marginal profit of a product = Marginal profit of a product unit * Volume of production of this product

The meaning of marginal profit is as follows. The formation of variable costs is carried out directly for each type of product. The formation of overhead (fixed) costs is carried out within the entire enterprise. That is, the difference between the price of a product and the variable costs of its production can be presented as a potential “contribution” of each type of product to the overall final result of the enterprise.

Or, marginal profit- is the marginal profit that an enterprise can receive from the production and sale of each type of product. With a multi-product production, analysis of the assortment based on marginal profit (the so-called marginal analysis) makes it possible to determine the most profitable types of products from the point of view of potential profitability, as well as to identify products that are not profitable (or unprofitable) for the enterprise to produce.

That is, marginal analysis allows you to rank the product range in increasing order of “marginal (potential) profitability” various types products and develop appropriate management decisions regarding changes in the product range. Supplementary to marginal profit is the marginal profitability indicator, calculated as:

Marginal profitability = (Marginal profit / Direct costs)*100%

The marginal profitability indicator reflects how much income the enterprise receives per invested ruble of direct costs, and is very indicative for comparative analysis various types of products. It should be noted that marginal analysis is, to some extent, a formalized approach to studying the “profitability” of producing a particular type of product.

Its main advantage is that it allows you to see the overall picture of potential profitability and compare different types (groups) of products in terms of production profitability. But to make decisions on changing the structure of output, more in-depth research is needed, mainly oriented to the future.

These are, for example, stability, reliability and the possibility of expanding sales markets even if the products are not the most profitable, the possibility of improving quality and increasing the competitiveness of certain types of products, etc. In any case, the enterprise’s efforts should be aimed at optimizing the product range, maximizing the production volumes of the most profitable products and reducing the production volumes of unprofitable types of products. The total amount of marginal profits for all types of manufactured products represents the marginal profit of the enterprise.

Marginal profit is the source of covering the company's overhead costs and profit. Then the profit that the enterprise can count on is determined by:

Profit = Contribution Margin - Overhead

That is, increasing profits is achieved by maximizing marginal profit (or optimizing the assortment) and reducing overhead costs.

In general, both break-even point analysis and margin analysis are important tools in the process of planning production and financial flows and are increasingly used in the practice of enterprises.

Contribution margin is the difference between sales profit and variable costs. See how to calculate and analyze the indicator. We'll tell you how to predict it.

Marginal profit is

Marginal profit is calculated as the difference between sales or sales income and variable costs.

How to forecast marginal profit for customers

Plan costs that arise when working with individual clients, as well as revenue and financial results can be done using a forecast of marginal profit for customers. Such a forecast can be used for scenario analysis when determining optimal sales conditions (for example, provide the client with a large discount, but ship the products to him on a pickup basis).

Marginal profit with a large range of products

To analyze MP at enterprises that produce a wide range of products, it makes sense to use the marginal profit ratio or marginal profitability. This coefficient allows you to compare non-absolute ruble values ​​of different commodity items, which may not be entirely true, but a relative value. The formula for calculating the coefficient is as follows:

K MP = (MP / CPUk) * 100%

Calculation example

Let’s say a company produces five product items and at the end of the year the performance indicators were the following values ​​of sales income and variable expenses for one unit of goods (in rubles).

table 2. Data for calculation

Then the marginal profit ratio for positions will take the following values:

K MP1 = (MP 1 / CPUk 1) * 100% = 5 / 11 * 100% = 45%.

K MP2 = (MP 2 / CPUk 2) * 100% = 5 / 27 * 100% = 18%.

K MP3 = (MP 3 / CPUk 3) * 100% = 15 / 45 * 100% = 33%.

K MP4 = (MP 4 / CPUk 4) * 100% = 30 / 92 * 100% = 32%.

The analysis shows that the highest marginal profit for product No. 4 is 30 rubles. The lowest values ​​for goods No. 1 and No. 2 are five rubles each. We can make the assumption that it is most profitable to produce product No. 4.

However, coefficient analysis changes the picture. The greatest profit will come from producing product No. 1. Its MP to revenue ratio is 45%. A marginal profitability of 45% means that for every ruble earned, there are 55 kopecks. variable costs, and 45 kopecks. remains with the company for fixed costs, interest on loans, taxes. Product No. 4 shows a coefficient of 32%. The worst indicator is for product No. 2, its coefficient is only 18%. Thus, the production of goods No. 2 can be abandoned and resources can be redirected to the production of goods No. 1, as the most profitable.

You can also analyze the marginal profit of one product line item sold in different volumes. For example, three batches of completely identical products. The first – with a volume of 1000 units, the second – 1400 units, the third – 1900 units. Let's take the following values ​​of revenue, variable costs and marginal profit (Table 3).

Table 3. Data for calculation

The resulting coefficient shows that returns increase with increasing production volume - the so-called effect of scale takes place. This occurs due to the influence of many factors. When increasing the volume of purchases of raw materials, semi-finished products and other materials related to variable costs, it is usually possible to reduce costs per unit. Suppliers give additional discounts for volumes, downtime and defects are reduced, as a result, the manufacturer makes the product more High Quality at a lower cost. And this affects competitive advantage goods. On the other hand, economies of scale also have dangerous aspects - many entrepreneurs lost control over excessively expanded production. The larger the company, the more difficult it is to manage it. manual mode", the higher the cost of errors - it is necessary to introduce other management methods.

Reading time: 9 minutes. Views 476 Published 04/15/2018

The marginal income indicator is one of the important parameters used when analyzing the performance of production activities. The task of the accounting department is to compile calculations and identify the level of marginal revenue in order to organize the correct expenditure of budget funds. Let's look at what contribution margin is based on various examples of accounting calculations.

Marginal income is fixed costs and profit

What is contribution margin

The term "margin" is used to mean financial indicator, reflecting the level of maximum revenue received from the sale of certain products or services. Thanks to this analysis tool, the profitability of production of a certain category of commercial products or services is revealed. Thanks to the use of such tools, entrepreneurs have the opportunity to obtain information about the profitability of the enterprise.

Profit is the difference between income from sales of the enterprise's products and production expenses.

In order to obtain data that truly reflects the current state of affairs, it is necessary to correctly compile a production cost item . Contribution margin is the result of the difference between revenue and variable costs. When the level of profit exceeds variable costs, the enterprise can be called successful. Otherwise, the production of commercial products is carried out at a loss to the company.

Accounting formulas

The contribution margin formula is as follows:

V n -PZ n = MP n, where:

1. MP n– the level of marginal income from the sale of n units of commercial products.
2. V n– the level of revenue from the sale of n units of commercial products.
3. PZ n– the level of variable costs associated with the production of n units of marketable products.

In order to determine the required value, you will need information about your current income and amount variable costs enterprises. In order to calculate the total amount of revenue received from the sale of goods, the following formula is used:

N*C n = B n, where:

1. N– quantity of products sold (pieces).
2. S n– the cost of one unit of commercial products.
3. V n– total amount revenue.

It is important to pay attention to the fact that the level of income of an enterprise is determined by the volume products sold. This means that the level of marginal profit is calculated based on this indicator.

What are variable costs

The variable expenses item includes production costs, the volume of which depends on production capacity companies. It should be noted that distinctive feature Variable costs are their occurrence only during the production process. This means that when this process is stopped, the level of variable expenses drops to zero.

The item of fixed production costs can include rent for real estate. These costs do not depend on the number of products produced and the level of production capacity. Variable expenses include purchasing costs Supplies and raw materials that are used in the production process. It is important to pay attention to the fact that if wages for hired personnel depend on the volume of finished products, then this type of expense is classified as variable expenses.

The level of marginal profit is calculated based on a certain volume of goods produced. In order to obtain data on this indicator, you will need information about the cost of a unit of goods and all variable costs associated with production. Summarizing all of the above, we can conclude that marginal profit is the result of the difference in income and variable production costs.

In some cases, accountants may need to compare the profitability of different products. In this situation, specific indicators are used. The term “specific marginal profit” should be understood as “margin” from one unit of commodity output.

Please also note that the values ​​used in the calculations are absolute. This means that they are expressed in terms of monetary units. In a situation where a company produces several types of goods, marginal profit ratios are used, which are relative values.

How is contribution margin calculated?

Consider how marginal income is calculated by practical examples. Imagine a small workshop producing three main products - plastic containers with a volume of one, five and ten liters. In order to determine the level of margin, you will need information about variable costs and income from the sale of one unit of goods from each category.

In order to obtain information about the required indicator, you will need to subtract variable costs from profit. In order to obtain the margin ratio, you will need to divide the resulting value by the information presented in the “revenue” column.

Based on the table above, we can conclude that the highest marginal income comes from the production of plastic containers with a volume of 10 liters. It is important to note that the profit from this product is only 33 percent, in contrast to 1-liter containers, which brings 53 percent of the income. This means that when selling products, one-liter containers will bring significantly more income compared to other products. IN in this example a specific indicator was considered, since one unit of commercial output was used in the calculations.

Next, we propose to consider examples of calculations, taking into account different indicators of production volume. It should be emphasized that in the example under consideration, an increase in production capacity led to a decrease in variable costs. In practice, this situation occurs when, for large orders, suppliers provide discounts to wholesale buyers.

In this example, contribution margin is the result of subtracting total variable costs from revenue. In this case, the contribution margin ratio will be different. As shown in the table above, the increase in production capacity led to an increase in enterprise profits and a decrease in variable costs for production.

Next, we propose to consider an example in which an enterprise has the opportunity to produce only one type of two goods within a month. In the first month, one and a half thousand were released plastic bottles volume 1 liter. In the second month, a batch of one thousand 5 liter plastic bottles was produced. Our task is to calculate the profitability of production of various goods, based on data on variable costs and income from product sales.

According to the table presented above, a five-liter container brings greater profit when taking into account the smaller volume of products produced. However, containers with a volume of one liter have greater profitability. To determine the level of production profitability, a column called “coefficient” is used. The presence of such information allows you to identify which products have higher profitability and, accordingly, bring greater profits. Based on all of the above, we can conclude that the contribution margin ratio is the proportion of income received as margin.

Break even

In preparation for the opening own business, an entrepreneur needs to create a competent business plan. This document discusses financial model future production taking into account profits to cover all production costs. The term “break-even point” represents a certain amount of production capacity at which the margin will be equated to a fixed cost item.

In order to find the value of the break-even point and marginal profit, we will consider the example of a workshop producing plastic containers. In the example under consideration, the amount of fixed costs is ten thousand rubles per month. Next, you will need to calculate the break-even point when producing a product with a volume of one liter. To do this, you will need to subtract variable costs from the cost of one unit of production, and divide the resulting result by the total number of fixed costs:

(10,000 rub.)/(15 rub.-7 rub.) =(1250(units))

The result obtained is the break-even point.

In the example under consideration, the enterprise needs to establish the production and sale of 1250 units of commercial products in order to cover the cost item. It is important to note that such activities will not bring income to the company.

The graph presented above clearly demonstrates that a volume of 1250 units of goods allows us to cover all production costs. In this case, marginal income is equal to the item of production costs.

Marginal and gross costs, what's the difference?

Having considered the question of how to determine marginal income, you should focus on methods for dividing costs. All production costs can be divided into two categories: indirect and direct. The last category includes all enterprise expenses associated with the production of marketable products. The item of indirect costs includes those expenses that are associated with the operation of the enterprise, but are not directly related to the manufactured products.

The item of direct expenses includes expenses for the purchase of production raw materials, wages of hired employees involved in the production process and other expenses related directly to the production process. The item of indirect expenses includes the salary of the enterprise administration, depreciation of production equipment and other types of expenses. It is important to pay attention to the fact that the difference between these costs is not always obvious, which leads to various errors in making calculations.

Marginal profit- this is the difference between the income received without tax at the enterprise among variable costs, including the cost of purchasing raw materials, paying staff, spending on gasoline and servicing the company.

The increase in profit margin depends on the expansion of the company; the wider the range of expansion, the lower the costs. This is explained by the fact that as the value increases, the initial cost of the manufactured product decreases.

What is the economic sense?

Marginal profit will be able to show what the best results the company can count on. The more significant the income, the better the costs are covered.

In another way, marginal profit is called the covering contribution. The marginal profit ratio itself is used to assess how much profit can cover the costs of the entire product as a whole, and for one item.

Methodology for calculating a company's marginal income

Marginal profit is divided into two indicators: revenue from sales of goods and variable costs.

Revenue - Variable Costs = Contribution Margin

Officially, the formula looks like this:

MR=TR-TVC

MR – marginal profit,

TR – income from the sale of goods,

TVC – variable costs.

Example:

When producing 200 pieces of any unit of goods, the amount of each is 1000 rubles. Variable costs, which include production costs, transport maintenance, wage etc. is 100,000.

How to calculate gross contribution margin?

M.R.=200*100-100.000=100.000 is the marginal profit of production.

Marginal profit nomencl. = Price - Cost;

Official wording:

MR=TR(V+1)-TR(V)

TR(V+1) is the profit received from the sale of goods,

TR(V) is the profit received when selling with an increase of one unit of production.

Here's an example:

When producing 10 products costing 100 rubles, the company decided to produce 11 products and sell them for 99 rubles.

MR = 99*11-10*100=89 rubles

This calculation allows you to exclude unprofitable products from production, and also helps to make changes in the sales of unprofitable products.

Marginal profit and other types of company income

To determine the relationship between marginal profit and the volume of goods produced, when forming pricing, you should separately take into account variable and fixed costs.

These include:

• rent,
• tax,
• staff salaries,
• loan payments;

Break even– this is equally the ratio of the contribution of the coverage to the fixed costs. Anything that rises above the norm is called the marginal profit volume.

Analysis of the company's marginal profit

An analysis of the company is carried out to determine the critical volume and to determine the coverage of variable costs with the help of trade items sold.

Margin analysis is required:

• with limited capital when more efficient distribution is required Money.
• with limited production capabilities, it is necessary to distribute the most profitable subtype of product.
• if there are doubts about some divisions of the enterprise and their effectiveness.
• if necessary, compare the prices of the competitive party and justify pricing policy production.

What does the analysis of the marginal profit of an enterprise give?

• calculation of break-even point,
• strict assessment of the profitability of any company product,
• assessment of decision-making when concluding additional contracts,
• assessment and decision to close the enterprise.

What is the relationship between break-even point and contribution margin?

Helps characterize the production of a zero-income product. The relationship between marginal profit and break-even point becomes clear when using the “costs minus efficiency” methodology.

Calculation of the classical point is ideal for calculating similar products that are close in value to the profitability and marginal profitability values. Allowable change in production volume with proportional changes for each product release.

Practice shows that such rules are most often not observed, since some subtypes of manufactured goods cannot be reduced or increased.

Therefore, the more considered term is “Overhead Boiler”, which is filled for each unit with marginal profit, that is, in other words, the company receives income only when the boiler is completely full, when the profit flows out and is collected on a separate plate.

How can you increase your company's profit margin?

To increase profit margins, you should focus on increasing total revenue and reducing variable costs.

Here is a table with methods to achieve increased profits and reduced costs.

Marginal income in Russia

Marginal income in Russia is calculated using this formula:

V.margin = VP - Zper VP– revenue from goods sold, Zper – variable costs.

The contribution to covering the company's fixed costs is shown by the margin. In Russia, marginal income is used in production at large enterprises, where it can bring maximum profit.

When can a company be said to have reached revenue level?

Why do you need to know what your business's contribution margin is?

Marginal profit allows you to determine which product or service contributes to an increase in profit and which, on the contrary, contributes to its decline.

Production is faced with the following issues:

• which product to discontinue and what to replace it with,
• should the sale of any product be expanded or not;

The negative aspects of this method are that it is best suited for large and established companies, where the calculation of marginal profit is very significant.

Conclusion

The article shows the different sides of contribution margin. This is of great importance in assessing the competitiveness of production on the market and its promotion in general.

By correctly applying these techniques, contribution margin allows you to increase productivity and sales, thereby increasing the profitability of the enterprise.

Contribution margin is the amount of money remaining after deducting from sales revenue the costs associated with the production of goods or their purchase. If we subtract all other types of expenses from it, we get the enterprise’s net income for the reporting period.

Formula for determining marginal profit

Total sales income - all expenses associated with the production of goods or their purchase/Total sales income

Thus, if a company earned 250 thousand rubles from selling goods that cost it 100 thousand rubles, then its marginal profit will be the difference between revenue and costs as a percentage:

250,000 - 100,000/250,000 = 0.60 or 60%

Why do you need to calculate marginal profit?

The closer your result is to 100%, the better. After all, the higher this indicator, the more money your company has to cover other types of expenses.

In most cases, the figure drops well below 100%: most likely you will get less than 50%.

Contribution margin can be used not only to calculate the profitability of a company, but also to calculate the profitability of each individual product or service line. This helps determine the feasibility of selling certain goods, as well as adjust their pricing. If the overall contribution margin is too low, the viability of the enterprise as a whole is called into question. However, if all other expenses are minimal, then it makes sense to continue the business. Additional adjustments in marketing and pricing are also welcome.

Improving the margin indicator

If the contribution margin is low, look at the fixed costs associated with the product: the cost of materials for production, shipping costs, and so on. Try to lower them, and also pay attention to a possible increase in the market price of goods or services.

The lower this figure, the more difficult it is to keep the business afloat. Don't be afraid to adjust different spending paths. Perhaps moving the company to another location with a lower rental rate or reducing the number of employees can increase your profit margin.

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