The CEO, Marcus, walked in holding a standard financial report. "Sales are up 40% this quarter, Elena. But our net profit is down. Traditional accounting tells me we are making money on every unit. I don't get it."
of the assembly staff on multi-functional robotics operations.
Elena knew that to fix the problem, she had to move away from standard absorption costing. The company was currently spreading all factory overheads based on direct labor hours.
"No," Elena shook her head. "That is cost-plus pricing. Market research shows customers will only pay for the . If we want to maintain a profit margin, we have to work backward." Elena wrote the formula on the board:
Six months later, Apex Robotics was transformed. The custom drone line was priced accurately to reflect its high overhead, the launched strictly at its target cost, and the entire company moved in harmony.
Compass
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The Dee Dee Brix Team