Page 16 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Chapter 1

Direct Product Profitability (DPP)

DPP is used primarily within the retail sector. DPP involves the
attribution of both the purchase price and other indirect costs (for
example distribution, warehousing and retailing) to each product line.

Thus a net profit, as opposed to a gross profit, can be identified for each
product. The cost attribution process utilises a variety of measures (for
example warehousing space and transport time) to reflect the resource
consumption of individual products.

Direct Product Profit for product A
$ $
Selling price 1.50
Less : bought-in price (0.80)
Gross margin 0.70

Less: direct product costs 0.16
Transport costs 0.18
Store costs 0.22
(0.56)
Direct Product Profit 0.14

Illustrations and further practice

Now attempt example 3 ‘DPP’ and read the illustration ‘More on DPP’ from
Chapter 1.

10