Search the World's Largest Database of Information Science & Technology Terms & Definitions
InfInfoScipedia LogoScipedia
A Free Service of IGI Global Publishing House
Below please find a list of definitions for the term that
you selected from multiple scholarly research resources.

What is Profitability Analysis

Encyclopedia of Decision Making and Decision Support Technologies
“The analysis of profit derived from cost objects with the view to improve or optimize profitability. Multiple views may be analyzed, such as market segment, customer, distribution channel, product families, products, technologies, platforms, regions, manufacturing capacity, etc.”
Published in Chapter:
Activity-Based Costing System for a Small Manufacturing Company: A Case Study
Arkadiusz Januszewski (University of Technology and Life Sciences in Bydgoszcz, Poland)
Copyright: © 2008 |Pages: 19
DOI: 10.4018/978-1-59904-843-7.ch001
The selection of the right cost calculation method is of critical importance when it comes to determining the real product profitability (as well as clients and other calculation objects). Traditional cost calculation methods often provide false information. The literature offers many examples of big companies that have given up traditional methods and applied a new method: activity-based costing (ABC). They discovered that many products that are manufactured generate losses and not profits. Managers, based on incorrect calculations, mistakenly believed in the profitability of each product. Turney (1991) reports on an example of an American manufacturer of over 4,000 different integrated circuits. The cost calculation with the allocation of direct production costs as machinery-hour markup demonstrated a profit margin of over 26% for each product. Implementing ABC showed that the production of more than half of the products was not profitable, and having factored in additional sales and management costs (which accounted for about 40% of the total costs), it was as much as over 75%.
Full Text Chapter Download: US $37.50 Add to Cart
E-Book Discount BannereContent Pro Discount Banner
InfoSci OnDemandECP Editorial ServicesAGOSR