Understanding Business Accounting For Dummies, 2nd Edition by Barrow Colin

Author:Barrow, Colin [Colin, Barrow,]
Language: eng
Format: epub
Publisher: ePub Bud (www.epubbud.com)
Published: 2011-01-02T16:00:00+00:00

Sell 9,750 additional units at the current contribution margin per unit of £32, which would raise the total contribution margin by £312,000 (9,750 × £32 = £312,000).

Use a combination of these two approaches: Increase both the margin per unit and the sales volume.

The second approach is obvious - you just need to set a sales goal of increasing the number of products sold by 9,750 units. (How you motivate your already overworked sales staff to accomplish that sales volume goal is up to you.) But how do you go about the first approach, increasing the contribution margin per unit by £0.60?

The simplest way to increase contribution margin per unit by £0.60 would be to decrease your product cost per unit by £0.60. Or you could attempt to reduce sales commissions from £8 per £100 of sales to £7.40 per £100 - which may adversely affect the motivation of your sales force, of course. Or you could raise the sales price about £0.65 (remember that 8 per cent comes off the top for the sales commission, so only £0.60 would remain from that £0.65 to improve the unit contribution margin). Or you could combine two or more such changes so that your unit contribution next year would increase £0.60. However you do it, the improvement would increase your earnings before tax the desired amount: Impact of £0.60 Higher Unit Contribution Margin on Profit

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