Could someone explain this function and the relationship between the Net multiplier and target profit?
1. Why not write this as
"Net Multiplier=Break Even*Target Profit"
2. Is the target profit a percentage number set by the firm based on the market and history of a similar project? Say 20%.If this is true, it seems to me that the "Net multiplier should = break-even rate * 1 + target profit rate".
For example, if breakeven rate = 2.3, target profit rate = 12%, than the
Net multiplier = 2.3 * 1.2 = 2.76
3. If we increase the Net Multiplier by increasing the indirect labor (which also means higher overhead), how would that benefit the firm? The money is spent after all and does not become the profit.
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