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Chapter No. 3 Marketing Cost and Profitability Analysis

The document discusses marketing cost and profitability analysis. It classifies marketing costs into categories like selling, advertising, warehousing, etc. It explains how to allocate costs by function and analyze profitability by territories, customers, products and salespeople. An example is provided to analyze the marketing costs of a company by territory.

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174 views12 pages

Chapter No. 3 Marketing Cost and Profitability Analysis

The document discusses marketing cost and profitability analysis. It classifies marketing costs into categories like selling, advertising, warehousing, etc. It explains how to allocate costs by function and analyze profitability by territories, customers, products and salespeople. An example is provided to analyze the marketing costs of a company by territory.

Uploaded by

Babar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
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Chapter No.

3
Marketing Cost and
Profitability Analysis

Lecture No. 13
Marketing

Marketing is matching products of a company with satisfaction


of customers at a reasonable profit for company.

Marketing Cost and Profitability Analysis

The study and evaluation of the relative profitability or costs of


different marketing operations in terms of customers,
salespersons, Products, territories, or marketing activities. Cost
accounting is typically used for this purpose.
A. Classification of Marketing Cost

Classification of marketing cost according to functions or


activities:
a. Selling
b. Advertising
c. Warehousing
d. Packing & Shipping
e. Credit & Collection
f. General Accounting (for Marketing)
B. Marketing Cost Allocation

Some of the basis for allocating marketing expenses are:

Function Cost Allocation Basis

Commission Sale of product by salesperson

Advertising Quantity of product units sold

Warehousing Size or weight

Packing & Shipping Number of shipping units

Credit & Collection Number of customer orders

General Accounting Transactions


C. Marketing Profitability Analysis

Under this, cost is analyzed and profitability of each territory,


customer, product and sales person is determined.

a. Analysis by Territories

Expenses assigned directly to a territory include:


(i) salespersons’ salaries, (ii) commissions, (iii) travelling
expenses, (iv) transportation cost, (v) packing & shipping cost,
and (vi) advertising
Expenses that must be prorated to the territory include:
(i) General management, (ii) general sales manager, (iii) credit
& Collection, and (iv) general accounting.
b. Analysis by Customers

Customers are grouped according to certain characteristics to


make the analysis meaningful. The grouping may be by:
(i) amount of average order (10, 20, 30, etc.), (ii) customer
volume (High or low), and (iv) kind of customer.

c. Analysis by Product

Products sold can be grouped according to product line or


brand.
d. Analysis by Salesperson

Selling function includes cost such as salaries, commission,


travel and other expenses connected with the work of sales
representatives.
For control of cost and analysis of profitability of sales made by
salespersons, the standard costs and performance standards
should be established.
Students please consult Exercise Number 1 of Chapter Number
23 ‘Marketing Cost and Profitability Analysis’ of your book.
Solution

The King Air Freshener Company


Marketing Cost Analysis
For the Year 19…
Territory
Waco Dallas Total
Sales Salaries $30,400 $45,600 $76,000
Salespersons’ expenses 6,000 10,200 16,200
Advertising 4,000 20,000 24,000
Delivery expenses 9,450 15,750 25,200
Credit investigation expenses 2,800 4,000 6,800
Collection expenses 2,850 8,550 11,400
Total $55,500 $104,100 $159,600

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