How To Balance Cost Vs. Profit Or ROI, Return On Investment
EGT1 – Task 1
Western Governors University
Economics and Global Applications In business you have to have measurements and balances that aid you in understanding if you are being successful or not, in short are you making a profit. To understand these measurements is imperative to understanding how to make a profit and plan for your future growth and development. That is where you have to understand how to balance cost vs. profit or ROI, Return on Investment. ROI is not so difficult if you understand some basic business concepts can help you maximize your Operating Contribution or total profit.
Marginal Revenue is the sales garnered when the company sales one extra more unit of a product where Total Revenue is the sum of sales for …show more content…
all products sold for a designated time frame. So if you look at them in comparison you will see Marginal Revenue measures how much more revenue can be made by item when added to your sales vs. Total Revenue measuring how much revenue will be made when you add the total sales of the product together during a specified time frame.
Marginal Cost is simply the individual cost to produce one more item to be added to sales and Total Cost is the cost to produce all the items to be added to sales for the measured time frame.
Marginal Revenue – Marginal Cost = Profit/Loss per one more item produced
Total Revenue – Total Cost = Profit/Loss for total sales of items produced for a measured period so profit is simply revenue minus total operating cost.
You can get a CPU (cost per unit) by dividing your total coat by units sold and you can do the same for revenue then subtract your cost per unit from your revenue per unit to get an average profit per unit as well. A corporation can use this information to determine its course of action to best maximize ROI (return on investment). Profit Maximization is what every corporation and small business owner strive for to insure they are making as much money as possible. To maximize profit each company must determine how to reduce the cost while increasing sales and revenue. This is done by determining at what level of production you utilize your resources to their fullest and produce the most for the least …show more content…
cost.
If you look at Company A and the Total Revenue and Total Cost chart provided you will be able to determine when the company maximized it’s profit.
Total Revenue to Total Cost – The chart below shows that Company A maximizes it’s profit when Total Revenue is $840.00 vs. the Total Cost of $300.00 making their total profit $540.00 and the highest profitable point. This is where they make their highest profit after cost.
Marginal Revenue to Marginal Cost – Looking at the chart provided for TC & TR you can determine the Marginal Revenue and Marginal Cost by figuring the added revenue by part by subtracting the next revenue total from the previous total to get the added revenue by part then you can do the same thing for the total cost line to determine your marginal cost.
If you do this you see that the Marginal Revenue is decreasing as Company A manufactures more products while the Marginal Cost increases as they produce more products. You find the maximum point of profit at the quantity of 8 where the Marginal Revenue and the Marginal cost are equal hitting the MR=MC or Maximum Profit as figured utilizing Marginal Revenue and Marginal
Cost.
Marginal Revenue is greater than marginal cost until Company A hits it maximum profit at eight units manufactured. So Company A needs to increase production until they reach eight units and then hold this level of production and maximize their profit.
Marginal Cost is greater than Marginal Revenue when the company produces fifteen or more units causing them to see a loss of total revenue and profit. Company A must reduce its cost per unit or reduce it’s production level to insure they make the most for each part produced.
If you look at Marginal Revenue and Total Revenue vs. Marginal Cost and Total Cost the company maximizes its profit at seven units where it makes the most Total Revenue for the best Marginal and Total Cost giving the company the appropriate balance to make as much profit as possible while controlling a cost per unit that supports and insures they will make more on the total sales.So when marginal cost exceeds or impacts your marginal profit it best for the company to reduce the amount of product they produce to maximize the marginal and total profit or the company needs to review why the efficiency drops and cost go up as they produce more to identify areas where they can improve or cut cost as they ramp up production. Until they can determine how to produce more and maintain marginal cost in line to maximize profit they must utilize the level of production that insures they maximize revenue and profit.
Western Governors University
Economics and Global Applications In business you have to have measurements and balances that aid you in understanding if you are being successful or not, in short are you making a profit. To understand these measurements is imperative to understanding how to make a profit and plan for your future growth and development. That is where you have to understand how to balance cost vs. profit or ROI, Return on Investment. ROI is not so difficult if you understand some basic business concepts can help you maximize your Operating Contribution or total profit.
Marginal Revenue is the sales garnered when the company sales one extra more unit of a product where Total Revenue is the sum of sales for …show more content…
all products sold for a designated time frame. So if you look at them in comparison you will see Marginal Revenue measures how much more revenue can be made by item when added to your sales vs. Total Revenue measuring how much revenue will be made when you add the total sales of the product together during a specified time frame.
Marginal Cost is simply the individual cost to produce one more item to be added to sales and Total Cost is the cost to produce all the items to be added to sales for the measured time frame.
Marginal Revenue – Marginal Cost = Profit/Loss per one more item produced
Total Revenue – Total Cost = Profit/Loss for total sales of items produced for a measured period so profit is simply revenue minus total operating cost.
You can get a CPU (cost per unit) by dividing your total coat by units sold and you can do the same for revenue then subtract your cost per unit from your revenue per unit to get an average profit per unit as well. A corporation can use this information to determine its course of action to best maximize ROI (return on investment). Profit Maximization is what every corporation and small business owner strive for to insure they are making as much money as possible. To maximize profit each company must determine how to reduce the cost while increasing sales and revenue. This is done by determining at what level of production you utilize your resources to their fullest and produce the most for the least …show more content…
cost.
If you look at Company A and the Total Revenue and Total Cost chart provided you will be able to determine when the company maximized it’s profit.
Total Revenue to Total Cost – The chart below shows that Company A maximizes it’s profit when Total Revenue is $840.00 vs. the Total Cost of $300.00 making their total profit $540.00 and the highest profitable point. This is where they make their highest profit after cost.
Marginal Revenue to Marginal Cost – Looking at the chart provided for TC & TR you can determine the Marginal Revenue and Marginal Cost by figuring the added revenue by part by subtracting the next revenue total from the previous total to get the added revenue by part then you can do the same thing for the total cost line to determine your marginal cost.
If you do this you see that the Marginal Revenue is decreasing as Company A manufactures more products while the Marginal Cost increases as they produce more products. You find the maximum point of profit at the quantity of 8 where the Marginal Revenue and the Marginal cost are equal hitting the MR=MC or Maximum Profit as figured utilizing Marginal Revenue and Marginal
Cost.
Marginal Revenue is greater than marginal cost until Company A hits it maximum profit at eight units manufactured. So Company A needs to increase production until they reach eight units and then hold this level of production and maximize their profit.
Marginal Cost is greater than Marginal Revenue when the company produces fifteen or more units causing them to see a loss of total revenue and profit. Company A must reduce its cost per unit or reduce it’s production level to insure they make the most for each part produced.
If you look at Marginal Revenue and Total Revenue vs. Marginal Cost and Total Cost the company maximizes its profit at seven units where it makes the most Total Revenue for the best Marginal and Total Cost giving the company the appropriate balance to make as much profit as possible while controlling a cost per unit that supports and insures they will make more on the total sales.So when marginal cost exceeds or impacts your marginal profit it best for the company to reduce the amount of product they produce to maximize the marginal and total profit or the company needs to review why the efficiency drops and cost go up as they produce more to identify areas where they can improve or cut cost as they ramp up production. Until they can determine how to produce more and maintain marginal cost in line to maximize profit they must utilize the level of production that insures they maximize revenue and profit.