Framework for Analyzing Product and Customer Profitability PPT
This PPT slide, part of the 26-slide Competitive Comparison Analysis PowerPoint presentation, focuses on the necessity of developing appropriate allocation methods to determine profitability by product and customer. It emphasizes 2 main dimensions: Product Profitability and Customer Profitability, each requiring distinct tracking and allocation strategies.
For Product Profitability, the slide outlines that profitability is tracked by individual products or product configurations. It details the types of costs involved, including direct labor and materials that can be directly assigned to products. Additionally, it mentions indirect labor and other manufacturing costs, such as inventory control and utilities, which should be allocated based on direct labor hours or machine hours specific to each product. The slide also highlights the importance of identifying components that can be directly assigned to products and the need for an allocation system that reflects the underlying cost drivers.
On the other hand, Customer Profitability is tracked by customer segments. Similar to product profitability, it involves direct labor and materials assigned to products purchased by each customer segment. Indirect costs are also considered, with allocation based on direct labor hours or machine hours relevant to specific customer segments. The slide stresses the importance of identifying components assignable to customer segments and ensuring that costs not directly assignable are allocated through a systematic approach.
Overall, the slide presents a structured framework for understanding how to effectively allocate costs to assess profitability at both the product and customer levels. This dual focus allows organizations to gain deeper insights into their financial performance, enabling more informed decision-making regarding resource allocation and strategic initiatives.
This slide is part of the Competitive Comparison Analysis PowerPoint presentation.
This presentation is created by former McKinsey, BCG, Deloitte, EY, and Capgemini consultants. It teaches a practical consulting framework actively used by tier-1 consulting firms.
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