Margin Analysis Cheatsheet 1727146806

M A R G I N A N A L Y S I S
H E S H A M M O K H I E M E R
M B A - C M A - C T P - F P A C - I F R S
M A R G I N
A N A L Y S I S
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Margin Analysis is a way to understand a

company's profitability by looking at the
difference between its sales and the costs to
make those sales.
MARGIN = SALES – COST OF SALES
This tells yo
u how muc
profit you'r h
e making
from your s
ales after
covering th
e costs.
KEY COMPONENTS OF MARGIN VARIANCE
PRICE EFFECT
How changing prices affect sales.
VOLUME EFFECT
How the number of units sold affects sales.
COST EFFECT
How the cost per unit affects total costs.
MIX EFFECT
How selling different combinations of products
affects profitability.
PRACTICAL STEPS FOR MARGIN ANALYSIS:
INTEGRATE PVM METHOD
Consider how each component of cost

contributes to overall margins.
PP E RR IU CN I ET
SALES INFLUENCED BY
VOLUME
S O L D
COST
PER UNIT
COSTS INFLUENCED BY
VOLUME
OF UNIT

NEGATIVE MARGIN VARIANCE
Sometimes, there can be negative margin variance due to
uncontrollable costs.This can happen due to uncontrollable costs,
which are expenses that a company cannot reduce or eliminate.
Examples of uncontrollable costs include certain taxes, rent or lease
payments, and interest on borrowed money.
Despite these challenges, companies might continue selling products or
services at a loss for a variety of strategic reasons. One such reason
could be maintaining market presence. Even if a company isn't making
a profit on a product, it might still sell that product to keep its brand
visible and relevant in the market. This strategy also prevents
competitors from taking over their market share.
Remember, while selling at a loss is not sustainable in the long-term, it
can sometimes be a strategic move to help a company stay competitive
in the market. It's the finance department's job to manage this carefully
to ensure the overall financial health of the company.
DRAW INSIGHTS FROM REAL-WORLD SCENARIOS
Learn from situations

with negative margin
variance and strategize
how to minimize costs
and focus on acquiring
new customers.
IDENTIFY HIGH MARGIN PRODUCTS
Analyze which products

yield higher margins. See
if selling more of these
products results in a
positive mix effect or if
selling less leads to a
negative mix effect.
VISUALIZE DATA
Use tables, pivot tables, and charts to

visualize data for easier understanding
and analysis. Waterfall charts are
particularly useful for illustrating
complex figures.
Effective
communication and
collaboration across
departments (like
Operations, Sales, and
Marketing) are vital in
making the most out of
the insights gained
from margin analysis.
EXAMPLE SCENARIO:
Negative Impacts: Price and cost changes

decreased the margin by $15,000 and $11,000,
respectively.
Positive Impacts: Higher-than-expected sales
volume due to low price added $33,733 to the
margin, and selling a favorable mix of products
contributed an additional $6,267.
Final Outcome: Despite the negatives, the actual
margin ended up being $50,000, which is $14,000
higher than the budgeted margin of $36,000.
Here's a bar chart illustrating the impact of various

components on the margin:
Red Bars represent negative impacts:

The Price Effect decreased the margin by
$15,000.
The Cost Effect further decreased it by
$11,000.
Green Bars represent positive impacts:
The Volume Effect significantly increased the
margin by $33,733.
The Mix Effect added an additional $6,267.
The Blue Bar shows the overall impact (Total),
which is an increase of $14,000 in the margin.
This visualization helps to easily understand how

each factor contributed to the final margin
outcome of $50,000, surpassing the budgeted
margin of $36,000.
The key takeaway is that despite negative impacts

from price and cost changes, the positive effects of
higher sales volume and a favorable product mix led
to a strong overall performance.
CONCLUSION
Margin Analysis is a powerful tool for

understanding profitability and making
strategic decisions. By breaking down
margins into key components and visualizing
the data, businesses can gain valuable
insights and drive future performance.

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M A R G I N A N A L Y S I S

Margin Analysis is a way to understand a

MARGIN = SALES – COST OF SALES

KEY COMPONENTS OF MARGIN VARIANCE

PRACTICAL STEPS FOR MARGIN ANALYSIS:

INTEGRATE PVM METHOD

Consider how each component of cost

PRACTICAL STEPS FOR MARGIN ANALYSIS:

PRACTICAL STEPS FOR MARGIN ANALYSIS:

DRAW INSIGHTS FROM REAL-WORLD SCENARIOS

Learn from situations

PRACTICAL STEPS FOR MARGIN ANALYSIS:

IDENTIFY HIGH MARGIN PRODUCTS

Analyze which products

PRACTICAL STEPS FOR MARGIN ANALYSIS:

Use tables, pivot tables, and charts to

PRACTICAL STEPS FOR MARGIN ANALYSIS:

Negative Impacts: Price and cost changes

Here's a bar chart illustrating the impact of various

Red Bars represent negative impacts:

This visualization helps to easily understand how

The key takeaway is that despite negative impacts

Margin Analysis is a powerful tool for

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