Use the bottom part of Form 4 to determine the margin potential. Go to the Buying Criteria on the Segment Analysis pages of The Capstone® Courier for Round 0 to find the maximum permitted price and the minimum acceptable Mean Time Between Failure (MTBF) for each segment (lowering the MTBF decreases material cost). Determine the minimum Material Cost per segment using the following equation (see Table 8.4 for an example):

Minimum Material Cost = ($0.0003 x Minimum Acceptable MTBF) +
Trailing Edge Positioning Cost in Table 8.3

Determine the minimum Labor Cost for each segment ($11.20 is a rough estimate of the labor cost. It is used solely to illustrate the Margin Potential concept):

Minimum Labor Cost  =  [$11.20 - (1.12 x Automation Ratings below)] + 1.12
    Traditional Automation:   8.0
    Low End Automation: 10.0
    High End Automation:    5.0
    Performance Automation:    6.0
    Size Automation:    6.0

Find the Contribution Margin dollars and Contribution Margin percent:

Contribution Margin = Price - (Material Cost + Labor Cost)

Margin Percentage  = Contribution Margin / Price