Modern entrepreneurs do not often use the calculation of marginal income indicators in their practice, but in vain, because with their help you can make a financial forecast of activities in advance. Marginal income is the difference between revenue from sales of products and variable costs. Sometimes it is also designated as the amount of coverage, the part that leaves the proceeds to reimburse fixed costs and make a profit.
This term is usually used immediately in two meanings: marginal profit and income from the sale of goods obtained after covering variable costs. The first definition involves the
calculation of profit for the sale of each subsequent unit of production. In the second case, the source of
fixed costs and income generation is assumed.
It is very important for each manager to correctly calculate the marginal income. Its formula is very simple, it is necessary 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 direct costs of producing a unit of goods.
In most cases, in our country, only in the field of trade, margin income is calculated, this is, in fact, a trade margin. In foreign companies, this indicator plays a huge role in drawing up financial plans, forecasting further production. To get the correct values, it is important not to make a mistake and take the necessary indicators, because then it will be unclear whether the business is profitable or not.
In large companies, for each type of product, marginal income is calculated. This allows you to find out how profitable or unprofitable a product is. If the indicator is negative, then the output should be suspended, because with each subsequent unit the company will be increasingly at a loss. Margin analysis allows you to determine the release of which product is profitable to engage in, and which is better to withdraw from production. Using the breakeven model, you can determine, starting with how much sales or services performed, the company begins to receive income.
Marginal income is a significant indicator, which is tracked with statistics on types of products, various industries and activities. Knowing its industry standard, you can easily calculate direct costs and revenue. It should be borne in mind that a business will be profitable only if the amount of marginal income fully covers taxes, total costs, and there will still be profit. If this amount is not even enough to cover costs, then production is considered unprofitable.
To correctly calculate the marginal income, it is necessary to accurately determine direct costs. These include costs tied to a unit of production, such as labor costs or the cost of materials. The total costs include everything else, and they cover the marginal income. If everything is calculated correctly, then the sum of the total costs will practically not change, because these include the cost of renting a room, the salary of regular employees, utilities, etc.