Ways to influence marginal income. Increasing marginal income. Marginal profit nomencl. = Price - Cost

10.04.2020

Marginal revenue is the difference between income from sales or sales of products and various variable costs. In this case, income is considered as the company's sales revenue, excluding VAT. Concerning variable costs then everything is quite straightforward, from the final cost of the product the company calculates: the cost of electricity costs, the wages of working personnel, the cost of raw materials, fuel, various unforeseen financial investments etc.

Undoubtedly, the margin is the main indicator of the capacity potential of the enterprise. The higher it is, the more financial resources to pay off variable costs, which raises the potential for a production plan.

It is quite profitable to produce bulk batches of goods, since with large-scale production, the cost of goods costs decreases, which allows you to have a large marginal profit. This pattern in economics is called “scale effect”. We'll talk about her later.

In business and retail, this concept is quite widespread. This is due to the fact that retailers can change the cost of goods in the process of market instability. Since the laws Russian Federation Nowhere is the penalty for exceeding the margin rate mentioned. Permissiveness is restrained only by competition. With a shortage of goods, the margin tends to increase. It is a natural response of supply to demand.

Margin in retail- the main income of businessmen. They form the final cost of products on the market.

Calculation formula for calculating the margin rate

Gross margin includes two fundamental indicators - this is the proceeds from the sale of goods and variable costs.

As you know, the margin is the difference between income and variable costs. Below you can consider the formula by which you can calculate marginal profit.

Marginal profit = “price” minus “ variable costs”.

The formula can be viewed below.

Marginal profit per unit of goods:

"Price" minus "Cost".

For example: the price per liter is 50 rubles, and the cost is 20 rubles.

Calculation: 50-20=30,

30 rubles - marginal profit per unit of goods.

To find the total marginal profit, subtract variable expenses from this cost (30 rubles).

If your income only covers the final costs of the producer, then he is at the “point of hopelessness”.

Profit margin analysis is needed to calculate the critical volume of output that can cover variable costs by 100%. It is quite common to call this the break-even point. It guarantees the expediency and profitability of production.

The demand for products and the cost of their manufacture are the main criteria for marginal analysis. When calculating it, all factors, the influence of which may affect the price in the first place, are taken into account. After all, the price is the overwhelming criterion for the selection of manufactured products on the market. It is a reference point for the buyer, the demand for the goods and the success of the sale depend on it.

Analyzing technological capabilities enterprise, its tariffs for payment wages, fixed and non-fixed costs, taxes, various deductions, it will be possible to form the profitability of the release of goods and set the minimum amount of output at which the manufacturer will make a profit.

If the marginal profit is equal to the cost of production, then the profit is equal to zero.

Over the past 15 years, a list of products has formed that have a biased margin percentage.

Beverages. All retailers know that reselling drinks is a very profitable business. It is also a plus that this product has a seasonal demand.
Bijouterie. Products made of cheap plastics, glass and various metals are sold with a 300% markup. It's hard to argue that it's beneficial.
Flowers. The cost of one flower is often 7% of the total cost. Count yourself.
Hand-made products. Here who is on what much. Prices for exclusive goods can differ in their price by thousands or even more times.
Tea and coffee by weight. It is quite difficult to imagine that you can earn a lot of money from this. But now, for example, buying tea or coffee in China at a wholesale price and selling it in your store at a 300% markup, you can achieve up to 70-80% margin.
Cosmetics. This information will be useful for women. General statistics says that only 25% of the total price of cosmetics is its cost, and 75% is various retailers' margins.
Sweets for children. Opening a point of sale for this product provides a payback in just the first month. Because the price of the same popcorn, which at cost is equal to 5% of the total price, at least 3-4 times higher, allows you to get up to 90% margin.

Every businessman is interested in creating a business with maximum foreign exchange returns. Undoubtedly, no one wants to get involved in a business that will not bring profitable income. Also, no one wants to go negative. For this, goods or offers are classified into:

High margin;
Average margin;
Low margin;

What is a high margin product? There are a number of reasons why this product is overpriced:

It has a great demand in the market, but in small quantities it goes on sale. This includes such types of goods as: jewelry, products made of precious metals, branded products, the demand for which is high throughout the year;
Created a “wow effect” in the market. It can be different things: from socks to various gadgets. The margin on them during a surge in demand increases sharply. But, as a rule, these products hold a high bar only for a short time;
Seasonal goods. Most have heard at least once that winter clothes should be bought in the summer. This recommendation proves that the markup on a product increases sharply with an increase in its demand. Seasonal goods have an order of magnitude higher price than in off-season. Take, for example, ice cream. In winter, the price for this product is the lowest, since it does not cause a stir and the margin for it is about 15% of the real value. Another situation is in summer period when the demand for a product increases hundreds of times. Entrepreneurs during this period increase the margin already up to 50-70%, and in some cases even more than 100-200%. For example, in resorts.

There are also high-margin services: cafes, restaurants, etc. Institutions of this type have a high margin percentage (100-200%). In a restaurant, you can, for example, sell one bottle of wine, which costs about 1,000 rubles for 3,000 rubles. The price, as a rule, depends on the status of the institution and the quality of services. But strangely enough, the demand for these services is growing over time.

Medium-margin goods. These goods are often not everyday use. The margin on them is less than on high-margin ones. Such goods include: household appliances, building materials, various tools, electronics and even cars.

Sales representatives typically set a margin of 30-40%. The presented goods also have some seasonality, but it is not so great as to be considered.

In business, this niche generates a good income, as the balance between price and supply increases the number of sales.

Low margin goods. As a rule, these are goods of daily use, such as: household chemicals, non-grocery goods, baby products, etc.

The margin on these goods cannot be higher than 10-20 percent. The benefit from the sales of this group of goods is due to the large turnover.

As for the service sector, the lowest income according to research have transportation- no more than 20%.

The state to this day has not yet set the maximum allowable margin for goods and services. Therefore, pricing policy is stable only due to market competition. Yes, and exceeding the price limit entails the loss of the most important component market trading- client.

Mid-margin and low-margin products are best bought from wholesalers or close to production, if you have such an opportunity. The higher the bulk purchase, the big discount provided by the manufacturer or distributor. As a result, the saved amount partially or fully offsets the cost of transportation or other costs, which reduces its cost.

In the harsh conditions of a market economy, the formation of the price of a manufactured product is influenced by many external and internal factors. State policy is not always aimed at improving pricing in the common market. An increase in tariffs and taxes entails a very large rise in the price of products. Therefore, production arrays are trying to put on a large-scale production, only some types of goods. This allows you to compensate for all fixed and variable costs and get a large marginal profit. This is called the “scale effect”.

But things are worse with those goods that, although they are in demand in the consumer market, but it is not very high. It is not profitable to put such goods on a large production flow, since bulk purchases are very small. Production can be rational only if it is high cost, since all the costs of taxation and production costs will be taken into account. Such a product is considered high-margin.

There are criteria according to which the product is considered profitable for large-scale production:

Great consumer demand;
Profitability of implementation;
The cyclical use of this product among buyers;
Technological availability;
Consumer availability;
Availability of multiple points of sale;
implementation stability.

Compliance with the conditions guarantees that the product will be stably sold on the market, because it is stability that makes it clear that the product can be put into production by default. Demand for it will not fall for a long time and with the help of this you can build long-term plans for business diversification.

An important factor in the growth of product prices are variable costs. after all, they make up 40% of the cost of production. Reducing payments on them will reduce the final cost of the product and increase the margin.

Methods to reduce variable costs:

Implementation innovative technologies;
Simplification technological process;
Production automation;
Cheaper raw materials and types of purchased fuel;
Changing the range of products.

Concerning positive side margin, it, like any other economic value, is beneficial only for sales representatives. Since the state has not approved the maximum allowable margin interest rate. A good opportunity for those who want to create a high-margin product or service.

The other side is consumer, as the buyer always has to overpay for the goods. And it is unlikely that he will ever be able to find out the real cost of goods. This could become a kind of consumer revolt, which will provoke a decrease in the interest margin rate. It doesn't benefit anyone.

Increasingly, there are requests from consumers to the Ministry of Finance to allocate the maximum allowable margin for each type of product and service. A reform of this kind will make it possible to stabilize prices, expand the number of points of sale for goods, and significantly reduce the price of high-margin products.

In what cases the state can influence marginality

The state apparatus in Russia does not interfere in the market economy as long as business is not a monopoly. If the enterprise has grown to such a scale that there are no competitors in terms of market share or production volume, the antimonopoly committee comes into play. This state structure created in order to contain the ardor of a monopolist in a market where he has no competition.

If the monopoly starts raising prices without good reason, the antimonopoly committee may apply to Supreme Court. Liability for non-compliance with the rules may be as follows:

Penalty, the size of which is not limited. For example, in 2016, the court ordered Google to pay a fine of 500 million rubles for the deliberate creation of adverse conditions for other players in the monopolized mobile software market;
Restriction on activities in the Russian Federation;
Price increase prohibition.

If the monopolized market belongs to one or two companies, the marginality of products and services on it is weakly related to the laws of the market economy. Consumers have no choice but to use the goods or services offered by the monopolist. An example is the aforementioned mobile phone market. software, 80% of which is occupied by Google with its operating system Android.

Competing with a monopolist is often pointless. A new player who wants to win back a market share should have practically unlimited cash injections, which will be aimed at reducing the cost of a product or service for the end consumer. This must be done so that the new supply can compete with the monopoly on price. Obviously, in such situations, a new player has to work at a loss for years. Sometimes decades. Until the market share will provide exponential growth. This requires a huge amount of resources, so it is difficult to compete with monopolies. The only way to exist in the same market with large corporations- the activities of the antimonopoly service or the transition to other niches, meeting the needs of the audience in new ways or focusing on a different target audience.

Any entrepreneurship implies the ultimate goal of making a profit. The economic meaning of this category may differ depending on which funds are included in it and what costs and additional payments are excluded. The type of profit is also important in relation to the purpose of its allocation. So, income as taxable profit is of interest to tax authorities, and distributed profit is of interest to shareholders. The businessman himself will be primarily concerned with net profit.

However, when planning the possibility of investment, evaluating the effectiveness of entrepreneurship, one must take into account that in order to calculate profit, it is necessary to remove from the calculations not only fixed, but also variable costs, despite the fact that they are difficult to predict. Such profit - marginal - will more accurately reflect the financial performance of the business.

Consider the essence of marginal profit, give the formula by which the margin and break-even of production are calculated. Let's analyze the factors affecting the margin, as well as possible ways increase this type of profit.

Marginal profit: what is it

The profit of the enterprise is formed as a result of the production of products and its sale, minus the costs incurred in the process of this production, as well as the costs of organization and management.

Marginal profit(from the English "Margin" or the French "Marge", which means "difference") - this is the income of the enterprise, formed by the proceeds from the sale of a certain volume of goods, minus the costs incurred in the production process (variable costs) of the same volume of products.

This financial category is sometimes called the “coverage amount”, since it is at its expense that the coverage of the cost of labor remuneration of personnel is formed, and the balance is the businessman’s net profit.

A close but not identical term is . The difference with marginal profit is that non-manufacturing costs are also taken into account, and it is also calculated per unit of output. Marginal profit takes into account the entire range of manufactured goods, thereby characterizing the overall profitability of the enterprise.

The word "margin" is sometimes used in professional slang to refer to marginal profit itself, but more often it means the indicator of marginal profitability (it is calculated as a percentage).

NOTE! Growing Marginal Profit Means Boosting net profit businesses through faster recovery of variable production costs. It is the increase in marginal profit that is the goal of various management strategies used to increase the profitability of production.

Formula and subtleties of margin calculation

Based on the definition of margin, it is calculated using a simple formula:

P margin. \u003d V p - R lane.

В р - the amount of proceeds from sold goods, services, works;
R per. - variable costs.

When calculating marginal profit, it is important to remember some accounting features:

The revenue for this formula is taken excluding VAT and excises.
Variable costs are those costs that are directly related to the volume of products produced and the quantity sold.
If during some accounting period the products were not sold or produced, this means that at that time the organization did not incur variable costs.
Variable costs do not react to change in any way pricing policy, assortment expansion, technological modernization and other factors. Only the volume of production and/or sales is decisive.

Calculating margin - an indicator of marginal income - is convenient for comparison with other financial categories, data on various types of products or figures that other enterprises show. The margin is calculated as follows:

M = P margin. / V p x 100

M - margin;
P margin. – marginal profit;
В р - the amount of proceeds from sold goods, services, works.

This indicator highlights the percentage share of marginal profit in sales revenue.

How to Interpret Marginal Profit

Marginal profit is needed to determine the break-even strategy of the enterprise. You can do it for each type of product from the range and for the entire production as a whole.

breakeven- such a state of production (output volume) in which the amount of revenue and costs (variables plus constants) balance each other. This volume can be calculated like this:

V without. \u003d P c o nst / (C unit - R lane)

V without. - the volume of goods that ensures break-even production;
P c o nst - fixed costs (total amount);
C unit - the selling price of a unit of output;
R per. - the cost of 1 unit of goods sold (variable costs per unit of output).

In other words, the amount of break-even depends on what proportion of the "coverage amount", that is, marginal profit, will cover the fixed costs for each unit of production.

In addition to the break-even analysis, the margin indicator is used when:

development management strategy to make decisions regarding the assortment;
forecasting the activities of both your company and competitors;
pricing policy planning.

Profit Margin Rates

generally accepted normative values margin obviously cannot exist. This figure is highly dependent on the industry. Therefore, it makes sense to consider the norms only in an industry context. For every industry there are products with higher and lower margins.

REFERENCE! The production and sale of luxury goods, for example, will have a higher margin than goods that are needed on a daily basis.

Ways to influence the growth of marginal profit

intensive way increase in marginal profit - accounting for the category of marginality within the same industry.

Low-margin products receive a limited trade margin when sold. But you can influence the ratio of marketing of low- and high-margin products by paying more attention to advertising the latter, providing them with additional discounts, bonuses, and other ways to increase sales.

For example, in the pharmaceutical industry, dietary supplements and cosmetics are more marginal than commonly used ones medicines. Raise the margin above the level set by the state, pharmaceutical companies not entitled. But they can advertise dietary supplements more, encourage employees who provide a high level of sales, negotiate with doctors who will recommend them to their patients, and use other marketing moves. So you can influence the ratio of sales of high- and low-margin product groups.

extensive path influence on the growth of the margin - an increase in the price of the goods, as a result of which the margin percentage will increase in revenue. Sometimes, in order to maintain or even increase the volume of sales, companies may offer, together with the goods Additional services service or other bonuses.

ATTENTION! In practice entrepreneurial activity it makes sense to intelligently combine both of these methods of increasing marginal profit.

Limitations of Margin Analysis

The method of analysis and forecasting, which is based on the marginal profit indicator, cannot be 100% effective. Some restrictions are imposed on it, due to the economic meaning of the concept of margin. So, when analyzing the profitability and profitability of an enterprise using margin calculation, the following nuances should be taken into account:

Even with constant production costs, the market price of a product can change dramatically for various reasons, while even an increase in output will not affect the real indicator, in contrast to the calculated one.
Fixed and variable costs may change places from time to time, which will distort the calculated margin figure.
It does not take into account other variables, in addition to the volume of output, which can also affect the implementation, and hence the profit margin: such as technological characteristics, wage changes, staff productivity, etc.
The margin calculation method implies that all manufactured products were sold, and this is not always the case.

Reading 9 min. Views 476 Published on 04/15/2018

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

Marginal income is fixed costs and profits

What is Marginal Profit

The term "margin" is used to refer to 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 a certain category of production is revealed. marketable products or services. Thanks to the use of such tools, entrepreneurs get the opportunity to obtain information about the profitability of the enterprise.

Profit is the difference between the income from the sale of the company's products and production costs.

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

Accounting formulas

The margin formula is as follows:

V n -PZ n \u003d MP n, where:

MP n- the level of marginal income from the sale of n units of marketable products.
V n- the level of proceeds from the sale of n units of marketable products.
PZ n- the level of variable costs associated with the production of n units of commercial output.

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

H * C n \u003d B n, where:

H- the number of products sold (by the piece).
C n- the cost of one unit of marketable products.
V n- total revenue.

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

What are variable costs

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

The formula for calculating marginal income does not show its dependence on fixed costs, variable costs and prices

In the article of fixed costs of production, you can include rent for real estate. These costs do not depend on the number of products produced and the level of production capacity.. Variable costs 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 the remuneration of hired personnel depends on the volume finished products, then this type of expenses is classified as variable expenses.

Marginal profit level is calculated on the basis of a certain volume of goods produced. In order to obtain data on this indicator, information will be required on the cost of a unit of goods and all variable costs associated with the production of products. Summarizing all of the above, we can conclude that marginal profit is the result of the difference between 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 the "margin" from one unit of marketable output.

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 is engaged in the production of several types of goods, profit margin ratios are used, which are a relative value.

How margin is calculated

Consider how marginal income is calculated using practical examples. Imagine a small workshop producing three main products - one, five and ten liter plastic containers. In order to determine the level of margin, information will be required on the 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 get the margin ratio, you will need to divide the resulting value by the information presented in the "revenue" column.

Marginal income is equal to fixed costs at the break-even point

Based on the above table, 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 the 1 liter container, which brings 53 percent of the income. This means that when selling products, a container with a volume of one liter will bring significantly more income compared to other products. In this example, a specific indicator was considered, since one unit of marketable output was used in the calculations.

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

In this example, marginal profit 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 the profit of the enterprise and a decrease in variable costs of production.

Further, we propose to consider an example in which an enterprise has the opportunity to produce only one type of two goods during a month. In the first month, one and a half thousand plastic bottles volume of 1 liter. In the second month, a batch of 1,000 5 liter plastic bottles was produced. Our task is to calculate the profitability of the production of various goods, based on data on variable costs and income from the sale of products.

According to the table above, a five-liter container brings more profit when taking into account a smaller volume of production. However, a one-liter container has a greater profitability. To determine the level of profitability of production, a column called "coefficient" is used. The presence of such information allows you to identify which products have more high profitability, and consequently generate higher profits. Based on all of the above, we can conclude that the profit margin ratio is the share of income received as margin.

Marginal income (profit) is the difference between sales revenue (excluding VAT and excises) and variable costs

Break even

While preparing for the opening own business, an entrepreneur needs to create a competent business plan. This paper discusses the financial model of future production, taking into account profits to cover all production costs. The term "break-even point" is 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 that produces plastic containers. In this example, the amount of fixed costs is ten thousand rubles per month. Next, you need to calculate the break-even point, when producing products with a volume of one liter. To do this, you need to subtract variable costs from the cost of one unit of production, and divide the result by the total number fixed costs:

(10,000 rubles) / (15 rubles-7 rubles) \u003d (1250 (unit))

The result obtained is the breakeven point.

In this example, the company needs to establish the production and sale of 1250 units of marketable products in order to cover the expense item. It is important to pay attention to the fact that such activities will not bring income to the company.

Volume	Total fixed costs	variable costs	General costs	Revenue	Marginal profit	Net profit
0	10 000 rubles	$0.00	$10,000.00	$0.00	$0.00	— 10,000.00 rubles
200	10 000 rubles	$1,400.00	$11,400.00	3,000.00 rubles	$1,600.00	— 8,400.00 rubles
400	10 000 rubles	$2,800.00	$12,800.00	RUB 6,000.00	RUB 3,200.00	-6 800.00 rub.
600	10 000 rubles	RUB 4,200.00	$14,200.00	$9,000.00	$4,800.00	-5 200.00 rub.
800	10 000 rubles	$5,600.00	$15,600.00	$12,000.00	RUB 6,400.00	-3 600.00 rub.
1000	10 000 rubles	7,000.00 rubles	$17,000.00	$15,000.00	8 000.00 rub.	-2 000.00 rub.
1200	10 000 rubles	$8,400.00	$18,400.00	$18,000.00	$9,600.00	-400.00 RUB
1250	10 000 rubles	$8,750.00	$18,750.00	$18,750.00	$10,000.00	$0.00
1400	10 000 rubles	$9,800.00	$19,800.00	$21,000.00	$11,200.00	$1,200.00
1600	10 000 rubles	$11,200.00	$21,200.00	$24,000.00	$12,800.00	$2,800.00
1800	10 000 rubles	$12,600.00	$22,600.00	$27,000.00	$14,400.00	$4,400.00
2000	10 000 rubles	$14,000.00	$24,000.00	$30,000.00	$16,000.00	RUB 6,000.00

Marginal income is a contribution to cover fixed costs and generate net profit

The graph above clearly demonstrates that a volume of 1250 units of goods allows you to cover all production costs. In this case, marginal income is equated to an item of production costs.

Marginal and gross costs, what's the difference

Having considered the question of how to determine marginal income, we should dwell on the methods of cost sharing. All production costs can be divided into two categories: indirect and direct. The last category includes all expenses of the enterprise associated with the production of marketable products. The article 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 employees involved in the production process and other expenses directly related to the production process. The article of indirect expenses includes the salary of the administration of the enterprise, 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 the calculation.

Marginal profit is the difference between the proceeds from the sale of products that were produced by the enterprise and the costs that appeared as a result of the creation of these products.

A little about margin

Very often it is also called the coverage amount. This can be explained by the fact that it is the revenue that the company receives to cover wages and to create the so-called permanent profit. That is, if the marginal income (profit) is higher each time, then this means that the cost recovery will be carried out faster, and the company will receive more net profit.

Marginal income in Russia

In the Russian Federation, the term "marginal profit" is not used so often. With some stretch, we can say that gross profit is practically the same thing, because the meaning of these two operations is very similar. But they also have some differences.

5.2 Calculation of marginal profit for goods, work, services

Gross income in the calculation uses non-production and production costs, but in the marginal approach they are considered more elastic. At the same time, such income is calculated both per unit of sold products and per unit of output. Why is it necessary to calculate it? To get the most accurate information about how much profit each unit of output brings to the company.

At the same time, in Russia there is another important term that is directly related to the money received - the marginal profit of the enterprise. It includes all income from the sale and production of various products.

Very often marginal profit is incorrectly identified with the so-called direct costing system. But they have significant differences that experts in this field are aware of. As a rule, on the territory of the Russian Federation, marginal income is used in the market and industrial sphere of entrepreneurship, because it is here that it brings the maximum result.

When can a company be considered to be making money?

In the event that the analysis of marginal profit shows that the income of the enterprise covers any variable costs quite well, we can say that profit here exists at a high level. At the same time, in the analysis process, it is necessary to take into account the entire range of manufactured goods. Marginal profit also helps to understand which types of products are the most profitable for production in terms of sales, and which are unprofitable or completely unprofitable.

What determines marginal profit and how can it be increased?

As a rule, it primarily depends on the variables on modern market indicators.

This is the cost of manufacturing one unit of goods and the price at which this product can be sold.

In practice, marginal profit can increase. How to get more income?

First, you can mark up your product range several times more. Secondly, you can produce and, accordingly, sell more product. But it is best, of course, to combine these two methods, then you will get higher profits. Of course, these methods seem simple, but sometimes they are not so easy to implement.

First of all, this is due to price competition, which nevertheless dictates its own conditions in setting the price for a particular product. Sometimes it happens that it is impossible to raise the cost of production higher. Also, limits on the cost are often determined by the state, especially for basic necessities. Moreover, it often happens that a large number of cheap products on the market brings a decline in its quality. This, in turn, may lead to the fact that there will be no demand for it.

Determine marginal profit

When an enterprise releases several products at the same time, then marginal profit and its calculation are a very important part of operational analysis. It should also be remembered that the larger the volume of products a company produces, the less cost it will receive per unit of goods. It works and vice versa. Since this necessarily includes the calculation of such fixed costs as renting premises, paying taxes, and so on, the marginal profit, the formula of which

MP \u003d PE - Zper,

shows how much should cover the costs of production. In this formula, MP shows marginal profit, NP is the net profit of the enterprise, and Zper is variable costs. If your income only covers the costs of the company, then it is at the break-even point.

Why do you need to know what marginal profit your company has?

First of all, this formula will allow you to understand which product you produce is the most in demand on the market in this moment. It is on its manufacture that you need to focus in order to get a sufficiently large income. By calculating the margin for each product, you can get an almost complete picture of your company's performance and profitability.

The negative aspects of this method

There is a linear relationship between costs and revenues, which means that even with an increase in the volume of goods produced, the price in the market may not change. At the same time, at certain points, the cost can also decrease or increase very sharply.
Fixed and variable costs, which can be considered in terms of relation to the costs per unit of goods, may have other values in terms of conversion. For example, constants can become variables, or vice versa. In this case, the constants will directly depend on the volume of output, and the variables at the moment will not change. This may slightly confuse the information received, which gives us marginal profit (including its calculation).
Influencing factors will not change. This includes technology, scale of production, labor productivity, labor rates, selling price of products. That is, only volume can be a variable factor.
Production and sales must be equal in volume.

Marginal profit is an increase in the total amount of profit that was received by the enterprise as a result of the sale of each additional unit of goods. On the other hand, such an economic term can be characterized as the difference between the profit received from the sale and marketing of products or the provision of any services, and the costs of the production process. Thus, marginal profit acts as the so-called coverage amount. This concept clearly illustrates the portion of income that is held with the intention of generating future benefits. In addition, the above amount can be spent to cover the volume of fixed costs. Therefore, the greater the marginal profit, the more efficiently and quickly the process of returning the funds spent can be carried out. As a result, there is an increase in income that the company in question has.

Gross profit

On the territory of the Russian Federation, this term with a stretch can be considered similar to the concept of "marginal profit". Both of these definitions characterize the receipt of reliable information about increasing the benefits of the organization. The calculation of the above value also allows you to get information about how much the amount of income increases in relation to each newly formed product name or developed service.

Marginal Profit: Calculation Formula

This economic indicator can be calculated both to determine the overall benefit of the enterprise as a whole, and for each manufactured unit of goods. The expression by which the desired value is calculated is quite simple. So, this formula can be represented as follows: marginal profit is calculated from the sum of total income minus variable costs.

Three states

From the analysis of the above formula, we can conclude that there is marginal profit, as well as its size. This is possible because the result of the expression clearly indicates the state of the considered economic indicator. Consider the case when a negative number was obtained as a result of subtraction. Therefore, there is no marginal profit, and the proceeds are not enough to cover variable costs. In the second case, the calculations gave a positive result. This means that not only is there enough income to cover costs, but there is also a surplus that can be used to improve the efficiency of the production process. The third situation considers the option when the result of subtraction is zero. This indicates that the volume of products sold fully covers the resources spent in the manufacturing process, but does not bring profit. Modern scientists call this state the break-even point, since such a result is sufficient to keep the enterprise afloat.

Definition

The concept of "marginal income" is rooted in the English phrase "marginal revenue". This term can be used in several cases. The first application implies the amount of additional profit that arises as a result of the sale of each additional unit of production. In turn, the second option characterizes the desired concept as the revenue that was received after subtracting variable costs. In this state of affairs, marginal income is rightly considered a source that contributes to the formation of profit, as well as a component of covering the amount of fixed costs. The above discrepancy is predetermined by the ambiguity of expressions and terms in English language. The first option corresponds to the concept of "marginal". Thus, the definition under consideration is, as it were, at the limit or on the border of the generally accepted one. The second option identifies the term "revenue margin", which is synonymous with calculating the interest rate difference. At present, scientists around the world more and more often define the desired concept according to the second option. Nevertheless, Russian experts still equate the sought-for term with the expression of marginal income with a stretch.

Formula

Marginal income is equal to the difference between total revenue and variable costs. This expression is the simplest and most understandable way to find the amount of profit of the required type. It should also be noted that the above formula does not take into account the influence exerted by the value of the price and fixed costs. Nevertheless, the share of marginal income in revenue is determined by the amount of the contribution that covers the costs of a fixed type, and contributes to the formation of the so-called net profit. Finding the size of the concept under consideration is considered particularly interesting in cases where the enterprise produces several types of goods. Therefore, the problem arises of determining which type of product contributes more to the total revenue.

Break even

In the event that marginal income is equal to the amount of fixed costs, experts talk about the so-called break-even point. In other words, the volume of sales of goods and services is at a level where the organization is able to cover all of its costs, while at the same time not receiving any profit. It's a delicate balance between a successful company and a losing company.

Conclusion

From the foregoing, the following conclusion can be drawn. Marginal income is important and necessary economic indicator, which is determined by the amount of profit from each new additionally released unit of goods. Therefore, thanks to this characteristic, the specialists of the accounting department will be able to reliably and more fully fulfill their direct duties, which ultimately consist in compiling the balance sheet of the enterprise.

Red="">Determination of marginal income plays an important economic role in financial analysis enterprises. Thanks to this indicator, you can establish the relationship between revenue, profit and costs. This relationship is of particular importance in making financial solutions in the production area.

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The activities of the organization are very important tool control and evaluation of the quality and effectiveness of its work. All indicators are of great importance. But Special attention are used for income and profits. The analysis of these factors is carried out in the context various kinds income from economic and marketing content. In many modern enterprises, income analysis is carried out not only for the purpose of evaluation. It is made for the successful adoption of further strategic decisions. In this case, marginal income is used for analysis as an approach to determining the profit necessary for making responsible business decisions.

The concept of marginal income

Apart from important indicator profit, showing the main result of activity, use other equal concepts. One of them is marginal income. This term comes from a consonant English phrase, translated in its pure form as "marginal return." It is used in several cases:

It means the amount of additional profit resulting from the sale of an additional unit of output.
Means calculated revenue minus variable costs.

The main economic significance of marginal income is to determine the impact of a management decision on the amount of profit and the receipt of fixed assets. Thanks to this, it becomes possible to set sales levels so that the profit is maximum, so that there is no profit, or even losses.

The relationship of marginal income, profits and costs

The formation and distribution of profits are important processes of entrepreneurial activity. Therefore, in the analysis financial activities a very important role is played by consideration of the received profit from the factors influencing it. Marginal income and profit are two interrelated indicators. The first after the calculation determines the marginal value of the second. Both indicators play a very important role in the analysis of the organization's financial performance, its prospects and decision-making for break-even operation.

Also these two economic terms closely related to operating costs. After all, marginal income shows how much profit is able to cover the variable costs that are directly included in the cost of production. In general, all expenses of the enterprise represent direct and variable costs. It is variable costs that have a great impact on the production process and profit. They are directly related to the volume of goods produced.

Margin calculation

According to one of its values, marginal income is a calculated indicator intended for analyzing activities, but above all for making the right decisions. marketing solutions. The calculation of this income is made in order to determine the difference between total revenue and variable costs. It should be noted that the price and fixed costs do not participate in influencing marginal income. The formula (below) of its definition shows the possibility of covering costs that are directly dependent on production volumes, profits received from the sale of these volumes.

where TRm - Marginal income;

TR - income (total revenue);

TVC - variable costs (total variable cost).

An important role is played by the calculation of this indicator in an enterprise where several types of goods are produced simultaneously. In this case, it is very difficult to understand which type of product takes the most specific gravity in total revenue.

Options for calculating margin income

In order to calculate the amount of revenue required to cover costs, two indicators are used in practice: the coefficient and the amount of marginal income. At the same time, most often they seek to define marginal income as a dependence of efficiency management decisions to cover variable costs.

Two calculation methods are used:

Variable costs are minus total revenue.
Add up variable costs and profits.

Many analysts take into account the average value of this income. It is derived by subtracting the average variable cost from the price of the product. And also in parallel calculate the coefficient of such income by determining its share in the proceeds from sales of products.

Margin Analysis

The company tends to regularly analyze the activity as a whole and its individual indicators. The analysis of marginal income is necessary, since its value has a direct impact on profit. According to the results of its calculation, the following conclusions are made:

The indicator is zero. Therefore, revenue covers only variable costs, and the company has a loss in the amount of fixed costs.
The indicator is greater than zero, but less than the value of fixed costs. Therefore, the revenue covers the variable costs and part of the fixed costs, and the loss is equal to the uncovered part.
The indicator is equal to the sum of fixed costs. Consequently, there is enough revenue to operate without loss, but also without profit. This situation in the economy is called the break-even point.
The indicator is higher than the value of fixed costs. Therefore, the revenue allows you to cover all costs and make a profit.

The definition of marginal income plays an important economic role in the financial analysis of the enterprise. Thanks to this indicator, you can establish the relationship between revenue, profit and costs. This relationship is of particular importance when making financial decisions in the field of output.