How to determine product profitability

Profitability allows you to identify which products were most profitable, that is most favorable for production. Also, consider that the cost-based equilibrium prices must meet the cost of production. Under the conditions of administrative-command economy where prices are determined willful (subjective) manner as the target costs of the enterprise, the cost does not reflect the state of the economy, and in consequence, it was impossible to calculate the actual profitability of products.

Instruction

1. Product profitability can be in three variants: the profitability of commodity products, sold products and individual products. The profitability of commodity products is possible to determine a cost indicator for the monetary products unit or its reciprocal.
   Formula:
   
   (T-s)/ T*100, where T is the commodity company's products at wholesale prices; C is total cost of commodity products.
   There is a classical formula to determine the profitability of commodity products:
   
   (T-S)/ S*100.
   The return on sales is a ratio of profit from sales of manufactured products to its cost in full.
   The profitability of the product is the ratio of profit per unit of produced product and the cost of this product. The profit on the product can be found from the difference between the wholesale price of the product and cost.
2. Profitability of products (also called profit margin) is the ratio of profit (the total amount) to product sales (the relative value of the profit, which accounts for only 1 ruble of current expenditures) and input costs.
3. Using product profitability assessment of the efficiency of production of particular types of products, the profitability of production, or total, balance profitability, in General, is an indicator of the performance of the company (industry).
4. Profitability of products (services or works) can be identified by the organization as a whole or for individual products. Using product profitability to determine whether it is possible for certain types to reduce costs. You can also calculate planned profitability, if the company wants to introduce some new product.
5. In order to find the profitability of products as a performance indicator of all costs of production or sale, you should use the following formula:
   
   Profit from the marketing of products : the Full cost of production * 100% = Profitability.