# Marginal revenue is an indicator of the profitability of a business

Modern entrepreneurs are not so often in theirpractice apply the calculation of indicators of marginal revenue, and in vain, because with their help you can pre-compile a financial forecast of activities. Marginal revenue is the difference between revenue from sales of products and variable costs. Sometimes it is also referred to as the amount of coverage, the part that goes from revenue to recovering fixed costs and making a profit.

This term is usually used immediately in twovalues: marginal profit and sales income received after covering variable costs. The first definition involves calculating the profit for the sale of each subsequent unit of output. In the second case, the source of coverage for fixed costs and income generation is implied.

For every manager it is very importantcalculate the margin income. The formula is very simple, you need to find the difference between sales volumes multiplied by the sales price and sales volumes multiplied by the cost of direct costs per unit of goods. For greater convenience, you can calculate the indicator per unit of output, you need to find the difference between the sales price and the direct costs of producing a unit of goods.

In most cases in our country only in the sphere oftrade expect a margin income, this is, in fact, a trade mark-up. In foreign companies, this indicator plays a huge role in drawing up financial plans, forecasting further output. To get the correct values, it's important not to be mistaken and take the necessary indicators, because then it will be unclear whether the business brings profit or not.

In large companies for each type of productthe margin income is calculated. This allows you to find out how profitable or unprofitable this or that commodity is. If the indicator is negative, then the output should be suspended, because with each subsequent unit the firm will be increasingly at a loss. Marginal analysis allows you to determine which product is profitable to produce, and which is best removed from production. Using the breakeven model, you can determine, starting with what volume of sales or services performed, the enterprise starts to receive revenue.

Marginal revenue is a significant indicator,tracked with statistics on the types of products, different industries and areas of activity. Knowing its industry standard, you can easily calculate the direct costs and revenues. It should be borne in mind that the business will be profitable only if the amount of marginal revenue completely covers taxes, total costs, and still there will be profit. If this amount is not enough even to cover costs, then production is considered unprofitable.

To correctly calculate the margin income,it is necessary to determine the direct costs. These include costs tied to a unit of output, such as pay or the cost of materials. Total costs include everything else, they are covered by marginal revenue. If everything is correctly calculated, the total costs will not practically change, because they include the cost of renting a room, the wages of full-time employees, utilities, etc.

Liked:
0
National income is the indicator
What is national income?
Financial results
Calculation of profitability on the basis of methodology
Imputed income is the minimum amount,
What is the profitability of sales?
EBITDA - what is it? How to calculate
Operating lever
Idea, business, enterprise and profitability
Categories
Top Posts