Products direct profitability

An application of logistics cost analysis that has gained widespread acceptance, particularly in the retail industry, is a technique known as direct product profitability - or more simply DPP . In essence it is somewhat analogous to customer profitability analysis in that it attempts to identify all the costs that attach to a product or an order as it moves through the distribution channel. 

The net profit contribution from the saies of a product after aiiowances are added and aii costs that can be rationaiiy aiiocated or assigned to an individuai product are subtracted = direct product profit... 

One way in which to get a closer view of how hxed costs behave by product is to use a method called direct product profitability (DPP). This method has been widely used in the retail industry to understand the way in which logistics costs behave for each product. The understanding is achieved by allocating fixed costs by making assumptions about how these are incurred by a product as it moves through the logistics system. 

A process plant making 2000 tons per year of a product selling for 0.80 per lb has annual direct production costs of 2 million at 100 percent capacity and other fixed costs of 700,000. What is the fixed cost per pound at the break-even point If the selling price of the product is increased by 10 percent, what is the dollar increase in net profit at full capacity if the income tax rate is 34 percent of gross earnings ... 

To obtain reliable estimates of investment returns, it is necessary to make accurate predictions of profits and the required investment. To determine the profit, estimates must be made of direct production costs, fixed charges including depreciation, plant overhead costs, and general expenses. Profits may be expressed on a before-tax or after-tax basis, but the conditions should be indicated. Both working capital and fixed capital should be considered in determining the total investment ... 

The alternative, product B, has a direct materials cost of 6 per unit and a direct labor cost of 4 per unit. In Table 9-28 overhead costs of 1,875 per unit, 5 per unit, and 2.50 per unit are calculated by taking 31.25 percent of direct materials cost, 125 percent of direct labor cost, and 25 percent of prime cost respectively. Total costs are 11.875 per unit, 15 per unit, and 12.50 per unit respectively and profits of 2,125 per unit, — 1 per unit, and 1.50 per unit respectively, for a selling price of 14 per unit. 

Static and Flexible Budgets Overhead cost can significantly affect the profitability of a projec t and is the only cost outside the control of the project manager. The project is expected to contribute a definite amount toward the expenses of the company and will be charged this amount even if the production rate is zero. This is the fixecTcomponent of the overhead cost and will include directly allocable costs such as depreciation and a proportion of general costs such as office salaries and heating. 

The cost of equipment determines the capital investment for a process operation. However, there is no direct relationship to profits. That is, more expensive equipment may mean better quality, more durability and, hence, longer service and maintenance factors. These characteristics can produce higher operating efficiencies, fewer consumption coefficients and operational expenses and, thus, fewer net production costs. The net cost of production characterizes the perfection rate of the total technological process and reflects the influences of design indices. Therefore, it is possible to compare different pieces of equipment when they are used in the manufacture of these same products. 

A survey of 500 plants that have implemented predictive maintenance methods indicates substantial improvements in reliability, availability and operating costs. The successful programs included in the survey include a cross-section of industries and provide an overview of the types of improvements that can be expected. Based on the survey results, major improvements can be achieved in maintenance costs, unscheduled machine failures, repair downtime, spare parts inventory, and both direct and in-direct overtime premiums. In addition, the survey indicated a dramatic improvement in machine life, production, operator safety, product quality and overall profitability. 

Corrosion decisions are only one part of the engineering design process, and it is important that these and related decisions do not cause undue delay . Delay can seriously damage the profitability of the project by increasing interest charges before any income from production it may also mean that a market opportunity is lost. These effects are on the whole project a delay associated with a corrosion decision can lead to costs much greater than those directly associated with corrosion. 

Much of the material presented in this book is based on the direct experience of the authors. This would not have been possible without the hard work and input of our colleagues, students and post-doctoral fellows. We sincerely want to acknowledge each of them for their good research and contributions without which we would not have been able to treat such a broad range of subjects. Some of them read chapters or helped in other ways. We also owe thanks to the chemometrics community and at the same time we have to offer apologies. We have had the opportunity of collaborating with many colleagues and we have profited from the research and publications of many others. Their ideas and work have made this book possible and necessary. The size of the book shows that they have been very productive. Even so, we have cited only a fraction of the literature and we have not included the more sophisticated work. Our wish was to consolidate and therefore to explain those methods that have become more or less accepted, also to... 

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