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Note that when such a chart is drawn, the linear CVP model is assumed, often implicitly. In symbols: = + = where TC = Total costs; TFC = Total fixed costs; V = Unit variable cost (variable cost per unit) X = Number of units; TR = S = Total revenue = Sales
It is possible to add non linear cost curves to the Profit model. For example, if with learning, the labour time per unit will decrease exponentially over time as more product is made, then the time per unit is: l = r * q −b. where r = average time. b = learning rate. q = quantity. Inserting into equation 8 π = pq - [F + (mμ + rq −b λ + n)q]
When the costs have been allocated, they can be deducted from the revenues per output unit. The remainder shows the unit margin of a product, client, location, channel or transaction. After calculating the profit per unit, managers or decision makers can use the outcome to substantiate management decisions.
Gross margin can be expressed as a percentage or in total financial terms. If the latter, it can be reported on a per-unit basis or on a per-period basis for a business. "Margin (on sales) is the difference between selling price and cost. This difference is typically expressed either as a percentage of selling price or on a per-unit basis.
Profit maximization using the total revenue and total cost curves of a perfect competitor. To obtain the profit maximizing output quantity, we start by recognizing that profit is equal to total revenue minus total cost (). Given a table of costs and revenues at each quantity, we can either compute equations or plot the data directly on a graph.
In business, Gross Margin Return on Inventory Investment (GMROII, also GMROI) [1] is a ratio which expresses a seller's return on each unit of currency spent on inventory.It is one way to determine how profitable the seller's inventory is, and describes the relationship between the profit earned from total sales, and the amount invested in the inventory sold.
Contribution margin (CM), or dollar contribution per unit, is the selling price per unit minus the variable cost per unit. "Contribution" represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs. This concept is one of the key building blocks of break-even analysis. [1]
Selling price (excluding tax) less cost results in the profit in money terms. Profit / selling price (excluding tax) when expressed as a percentage produces (gross profit) or GP%. Expense / net sales yields a percentage that when used as the target margin will produce gross profit.