### 9.3. Answering Two Critical Profit Questions If you were the manager of a profit center and you had just received the latest P&L report (see Figure 9-1), you should immediately ask yourself two questions:
• How did I make \$1.5 million profit (operating earnings before interest and income tax) in 2009?

• Why did my profit increase \$215,650 over last year (\$1,500,000 in 2009 - \$1,284,350 in 2008 = \$215,650 profit increase)?

#### 9.3.1. How did you make profit?

Actually, you can answer this profit question three ways (see Figure 9-1 for data):

• Answer # 1: You earned total margin that is more than fixed expenses.

You earned \$25 profit margin per unit and sold 100,000 units; therefore:

```\$25 unit margin × 100,000 units sales volume =
\$2,500,000 margin```

Your profit center is charged with \$1 million total fixed expenses for the year (\$750,000 direct plus \$250,000 allocated fixed costs); therefore:

```\$2,500,000 margin - \$1,000,000 fixed operating
expenses = \$1,500,000 operating profit```
```\$1,000,000 total fixed expenses for year ÷ \$25