For any core product line of USAA’s IT business, profit or loss can be calculated this way
(Total employee-related cost* x Fraction of employee-related cost allocated to product by ABC**) +
(Hardware and software costs directly supporting product) – (Customer volume x Product rate) = Profit/Loss
For a PC product line, the equation might look like this:
($1 million employee cost x 1/4 of employee cost allocated to the PC product line) + ( $400,000 hardware and software costs) – (2,000 PC customers x $350 flat rate per PC) = $50,000 profit
*Includes all employee- and facilities-related overhead.
**ABC = Activity-based costing, a method for calculating the “true cost” of a product or service by focusing on the actual cost of activities. ABC analysis focuses directly on cost drivers (factors that determine the cost of an activity) rather than overhead (the indirect recurring costs of running a business).