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David Norman & Associates

*Product/product-line profitability analysis

Questions to Ask

  1. Is your company experiencing cash flow difficulties?
  2. Has increased competition placed downward pressure on gross margins forcing closer management of expenses?
  3. Does management have adequate information by which to evaluate the performance of various departments or individuals?
  4. Has the financial structure (e.g., level of debt) of your company changed dramatically in the past year?
  5. Is your organization growing quickly and does it risk growing out of control?

Description of Service

A system of determining the financial profitability of various products (services) and/or product (service) lines and developing a financial profit plan that you can use to estimate the impact of today's business decisions on future operations and compare results with that of the plan.

Benefits

  • Better information to use for pricing and/or quoting of products and/or services
  • A model that readily calculates the variable and fixed portion of a rate and a total rate using different activity measures
  • Better understanding of different cost allocation approaches and their impact on costing, pricing, and profits
  • Better understanding of product and/or product line costing and profitability

Examples

A men's apparel manufacturer desired an analysis of the different product lines with the intention of improving margins and/or reducing unprofitable products. Results -- Several lines were identified which lead to an incremental re-pricing with their customers and improved profitability.

A floor covering distributor desired to raise the profitability of remote distribution centers through an analysis of their respective profitability and contribution to headquarters operations. Results -- Three remote warehouses were closed and the remaining inventory was consolidated in the remaining four distribution centers raising profitability markedly.


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