Analysis of Rising Costs

What is the profit margin per paper towel roll?
Profit margin is the amount that remains from the sale of a commodity after all the
expenses have been accounted for. It is computed by deducting total expenses from total revenue
and dividing by the overall revenue. The profit margin per paper towel roll is 38 cents. It shows a
decline from 50 cents per roll six months ago.
What are the production costs per paper towel produced?
The current production cost is 62 cents for each paper towel roll. The amount is an
increase from 50 cents in the last six months.
What is the significance of the cost increases from the past six months?
A review of the data indicates that the decline in profit margin and increase in the cost of
production is mainly due to two types of costs. One is the raw materials obtained from the
softwood, which have increased by 2 cents for each of the paper towel rolls. The other one is
labor cost that has increased by 10 cents for one roll of paper towel. That means there is an
increase of 12 cents in the cost of production, implying that the profit margin will have to decline
with the same amount.
Why is it necessary to do a trend analysis for this situation?
Performing a trend analysis is effective in indicating the level of performance in the
market. It is possible to know the sales that have been made and the price at which competitors
will be willing to sell the commodity. The analysis provides the best price for the paper towel
roll. It will be possible to predict the production cost in the future.
What are some recommendations to counteract the new setup costs?

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A key recommendation is to lower the labor cost. It is possible to source for employees
locally.