New Tab Ind Income profit assignm edu/bbcswebdav/pid-985345-dt-content-rid-56362

Question

New Tab Ind Income profit assignm edu/bbcswebdav/pid-985345-dt-content-rid-5636245_1 /courses/17FAZ-7521/Bloomu%20income%20profit%20assignm aron sares (or marketing ROS) shows the percent of net sales attrib- utable to the net marketing contribution. For our product, ROS is: percent of net sales attributable he net marketing contribution- culated by dividing net marketing tribution by net sales. net marketing contribution$4,000,000 = 0.04-4% net sales $100,000,000 Thus, out of every $100 of sales, the product returns $4 to HD's bottom line. A high mar- keting ROS is desirable. But to assess whether this is a good level of performance, HD must compare this figure to previous marketing ROS levels for the product, the ROSs of other products in the company's portfolio, and the ROSs of competing products. Marketing return on investment (or marketing ROI) measures the marketing pro- ductivity of a marketing investment. In HD's case, the marketing investment is represented by $41 million of the total expenses. Thus, marketing ROl is: rketing return on investment marketing ROI) measure of the marketing ductivity of a marketing estment-calculated by dividing marketing contribution by rketing expenses. net marketing contribution marketing expenses $4,000,000 $41,000,000 Marketing ROI 0.0976 = 9.76% As with marketing ROS, a high value is desirable, but this figure should be compared with previous levels for the given product and with the marketing ROls of competitors' products. Note from this equation that marketing ROI could be greater than 100%. This can be achieved by attaining a higher net marketing contribution and/or a lower total marketing expense. In this section, we estimated market potential and sales, developed profit-and-loss statements, and examined financial measures of performance. In the next section, we discuss methods for analyzing the impact of various marketing tactics. However, before moving on to those analyses, here's another set of quantitative exercises to help you apply what you've learned to other situations. Marketing by the Numbers Exercise Set Two Determine the market potential for a product that has 20 million prospective buyers who purchase an average of two per year and price averages $50. How many units must a company sell if it desires a 10% share of this market? 2.1 2.2 Develop a profit-and-loss statement for the Westgate division of North Indus- tries. This division manufactures light fixtures sold to consumers through home- improvement and hardware stores. Cost of goods sold represents 40% of net sales. Marketing expenses include selling expenses, promotion expenses, and freight. Selling expenses include sales salaries totaling $3 million per year and sales com- missions (5% of sales). The company spent S3 million on advertising last year, and freight costs were 10% of sales. Other costs include $2 million for managerial salaries and expenses for the marketing function and another $3 million for indi- rect overhead allocated to the division. a. Develop the profit-and-loss statement if net sales were $20 million last year b. Develop the profit-and-loss statement if net sales were $40 million last year c. Calculate Westgate's break-even sales.

Explanation / Answer

Ans. 2.1

There are 20 million prospective buyers for the product

Avg. purchase 2 units per buyer per year

So total market for the product is 40 million per year

In order to get 10% market share : 10% of 40 = 4 million units per year

Ans. 2.2

Computation of profit and loss account

Sales 40 million

COGS (40% of sale) 16 million

Gross profit 24 million

Less marketing expenses

Selling expenses ( 3+2) = 5

Promotion =3

Freight =4

12

Less other expenses (2+3) 5

Net profit 7 million

Answer 2.3

(a) G P margin = 24/40 =60%

(b) Net profit margin = 7/ 40=17.5%

(c)

(d) Inventory turnover rate:

Using cogs = 16/9 =1.78 times

Where avg inventory = 11+7 /2 =9

Using net sales

Inventory turnover = 40/9

= 4.4

(e) ROI = 7/20

=35%

(f) Net marketing contribution = gross margin - marketing expenses

= 24-12 =12 million

(g) Marketing Ros = Net marketing contribution/ Net sales

= 12/40 = 30 %

(h) Marketing ROI = NMC / Marketing expenses

12/12 = 1

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