Diagnose a profit decline
When sales rise but profit falls, reconcile the change before prescribing a fix. Start with revenue less variable and fixed costs, then split revenue into price, volume and mix.
Worked example
A shoe line sells 10,000 pairs at ₹500 each. It makes ₹100 per pair before fixed costs. After a mix shift, volume rises to 12,000 pairs but contribution falls to ₹75 per pair. Total contribution drops from ₹10 lakh to ₹9 lakh even though more pairs were sold.
Change the assumption
What if 2,000 of the 12,000 pairs were a new style and the original 10,000 still earned ₹100 each?
Check the reasoning
The original styles already earn ₹10 lakh. For total contribution to be ₹9 lakh, the new style must have lost ₹1 lakh, or ₹50 per pair. Verify that the totals use the same period before attributing the loss.
Check your reasoning
Can you tell whether the fall came from discounting or scrap?
Reveal the explanation
No. Compare realised price, direct costs and rejects for the same product and channel. A mix change can move the average even when every individual product is unchanged.
Try the same framework in a different case
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