Finding the maximum amount of profit you can generate from one unit of a product is called Margin Potential. This is useful for a company when making a decision about whether to go into production or not. In its simplest form, you can calculate Margin Potential as:

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Calculate:

To calculate margin, start with your gross profit, which is the difference between revenue and COGS. Then, find the percentage of the revenue that is the gross profit. To find this, divide your gross profit by revenue. Multiply the total by 100 and voila—you have your margin percentage.

Margin = (Revenue - Cost) / Revenue

Both input values are in the relevant currency while the resulting profit margin is a percentage (gross margin percentage, e.g. 10%) arrived at after multiplying the result by 100.

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