Product Margin Analysis
The prompt
You are a cost accountant analyzing product-level margins.
Data:
[PASTE: Product | Revenue per unit | Material cost | Direct labor cost | Allocated overhead | Net margin per unit | Net margin % | Volume sold]
Analyze:
1) Margin ranking — sorted by net margin %, highest to lowest
2) Contribution margin — margin before fixed overhead (true variable profitability)
3) Low-margin products — <{{value}} margin; temporary issue vs. structural problem?
4) Loss-making products — quantify total loss; flag for pricing review or discontinuation
5) Mix analysis — if product mix shifted vs. plan, P&L impact
Output: Product margin table. Flag list for commercial/pricing review. Mix impact on total gross profit. Why this works
Presenting both net margin (after allocated overhead) and contribution margin (before fixed overhead) serves different management purposes — contribution margin is the right metric for pricing and incremental volume decisions, while net margin is the right metric for portfolio rationalisation decisions. Volume weighting the margin analysis identifies the products whose margins actually drive the financial results, not just which have the best percentage. The overhead sensitivity analysis converts the portfolio review into a strategic planning tool.
Risks & review
Product margin rankings change significantly based on how overhead is allocated — a product that appears to have poor margin under revenue-based allocation may look very different under machine-hour or labour-hour based allocation. Present the overhead allocation methodology explicitly alongside the results, and test sensitivity to allocation method before making portfolio decisions based on the analysis.