If you have the capability to generate income statements by product, or by product lines, you will have good insight as to where resources and efforts can be allocated more efficiently and profitably. If this information is not readily available from your accounting system, you may be able to prepare pro forma income statements by product.
Certain costs may be more readily assignable to specific products than others. Costs that may be allocable by product include:
Materials and supplies
Direct labor
Manufacturing cost
Sales commissions
Advertising and publicity
By breaking down sales by product, and then allocating these direct costs, you can determine a gross margin by product. This will be helpful in showing which products are contributing the most to your bottom line.
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