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Most businesses have reporting systems that measure the overall financial performance of the organization. But these reporting systems often fall short in their ability to provide financial performance data for specific business segments of the organization. 

Without this critical information, it’s difficult for management to determine where resources should be allocated to maximize profit.

A cost and profitability analysis helps to provide this important data. This type of analysis not only serves as a tool to make more informed decisions, but can also identify ways to improve business processes.

How we can help
At RSM McGladrey, our consultants have extensive experience with contribution and profitability analysis. We use cost accounting techniques to identify direct costs associated with specific segments of your business and calculate the dollar amount that each segment contributes to your overhead and profit.

In addition to reviewing your financial statements, we work with you to gain an in-depth understanding of your business and its systems.

We also develop a micro-based spreadsheet model that incorporates facts and assumptions into a financial analysis tool you can use repeatedly.

Our approach to contribution and profitability analysis helps determine:

• Unit sales and revenues by segment  
• Direct material costs  
• Direct labor costs  
• Variable overhead (including variable selling expense)  
• Direct fixed costs

A contribution and profitability analysis has several benefits, including:

• Identifies the extent to which major business segments contribute to company overhead and profit
• Provides a method for management to compare performance of business segments and assess a product’s return on investment 
• Allows management to estimate the profit potential of new business opportunities
• Helps to improve business processes and operational effectiveness

Why RSM McGladrey
We understand you face unique challenges in measuring the financial performance of your organization. With this in mind, our approach is tailored to suit your particular needs.

Because our organization is structured to align with industries, our consultants have experience in several key industries including manufacturing, distribution, health care and financial services.

And as part of our full-service strategy, we offer a complete range of other business consulting services. We provide risk management, technology, operations and strategy consulting in addition to our financial management services.