How to Calculate the Distribution Margin in Finance

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The distribution margin is an accountancy term that describes the degree of profit or loss with respect to a good that is bought wholesale. The term is thus commonly used with commodities, such as oil or food. Such commodities tend to be sold in a supply-chain framework, with producers, distributors, middlemen and sellers. The distribution margin is especially useful in this case as it takes into account the cost of purchasing a good from the original producer or distributor.

Obtain the data needed for your calculation. This will include costs, which may involves all taxes, including state sales tax, federal excise tax and any governmental fees and marketing costs. You will need the wholesale price of the good, as well as the average sales price for which you are selling the good on the market. The specific number of variables needed in your calculation will depend on the type of good and market, and thus the relevant taxes and costs may vary.

Add up all taxes and compile them into a single quantity. If your taxes are in percentage terms, calculate the total tax paid and to be paid in dollar terms. Add the wholesale price of the good to this quantity. This will yield the total costs of your good.

Subtract the total costs from the average sales price of the good to get the distribution margin. If the distribution margin is positive, the good is being sold at a profit. If the distribution margin takes a negative value, it is being sold at a loss. Similarly, if the distribution margin takes the value of zero, the good is being sold at a break-even price.

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