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What is a Standard Margin in Accounting Terms?

Friday, May 08, 2009
Related Tags: standard | margin | costs | valuable | business
 

Instructions

How is Standard Margin Calculated?

  • Step 1:
    Standard margin is calculated simply by subtracting standard costs for a certain time period from sales and revenues for that same period.

What are Standard Costs?

  • Step 1:
    Standard costs exclude "one-time" costs and only include normal, expected costs. For instance, standard costs would include normal electric bills and rent, but would not include payments on a lawsuit.

What's a Good Standard Margin?

  • Step 1:
    The measure of a healthy standard margin varies by industry, and could range from three percent to over 100 percent of sales. The determination of a healthy standard margin is made by the business owner, based on the industry.

When is Knowing the Standard Margin Valuable?

  • Step 1:
    Standard margin is valuable for initial business planning (ensuring the model is regularly profitable) and for long-term planning (ensuring that the model is sustainable).

When is Knowing the Standard Margin Not Valuable?

  • Step 1:
    Standard margin can be an unrealistic measurement for gauging the actual effectiveness of a business and taking into account all aspects of operation; no business can avoid unpredictable events, which very often have significant impacts on profitability.

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