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Financial Aspects of Marketing Management

This document discusses key financial concepts related to marketing management including: Variable costs fluctuate with output while fixed costs remain constant. Relevant costs occur in the future and differ among alternatives, while sunk costs happened in the past. Gross margin is calculated as net sales minus cost of goods sold. Trade margin looks at margin as a percentage of cost and selling price. Contribution margin is the amount each unit sold contributes to fixed costs and profit. Break-even analysis determines the sales volume needed for total revenue to equal total costs. Contribution analysis has applications like sensitivity analysis, performance measurement, and assessing cannibalization.

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Mohd Imtiaz
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54 views10 pages

Financial Aspects of Marketing Management

This document discusses key financial concepts related to marketing management including: Variable costs fluctuate with output while fixed costs remain constant. Relevant costs occur in the future and differ among alternatives, while sunk costs happened in the past. Gross margin is calculated as net sales minus cost of goods sold. Trade margin looks at margin as a percentage of cost and selling price. Contribution margin is the amount each unit sold contributes to fixed costs and profit. Break-even analysis determines the sales volume needed for total revenue to equal total costs. Contribution analysis has applications like sensitivity analysis, performance measurement, and assessing cannibalization.

Uploaded by

Mohd Imtiaz
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Chapter 2 Financial Aspects of Marketing Management

Variable and Fixed Costs


Variable Costs

uniform per unit of output, within a time frame


fluctuate in proportion to output

Fixed Costs

remain constant within a time frame per unit cost decreases with increase in output programmed costs (e.g., marketing expenses) committed costs

Relevant and Sunk Costs


Relevant Costs

occur in the future differ among alternatives being considered

Sunk Costs

occurred in the past mostly irrelevant to future decisions

sunk cost fallacy

Gross Margin
Total Gross Margin Net Sales Cost of Goods Sold Dollar Amount $100 - 40 Percentage 100% - 40

Gross Profit Margin Unit Gross Margin Unit Sales Price


Unit Cost of Goods Sold

$ 60

60%

$1.00
- 0.40

100%
- 40

Unit Gross Profit Margin

$0.60

60%

Trade Margin
Suppose a retailer purchases an item for $10

and sells it at $20.


Retailer Margin as a percentage of cost is:

$10 / $10 x 100 = 100 percent


Retailer Margin as a percentage of selling price is: $10 / $20 x 100 = 50 percent

Trade Margin
Unit Cost of Goods Sold Gross Margin as a Percentage of Selling Price

Unit Selling Price

Manufacturer Wholesaler Retailer Consumer

$2.00 2.88 3.60 6.00

$2.88 3.60 6.00

30.6% 20.0 40.0

Contribution Analysis
Break-even point is the unit or dollar sales at which an organization neither makes a profit nor a loss. At the organizations break-even sales volume: Total Revenue = Total Cost

Contribution Analysis
Break-even Analysis

total dollar fixed cost Unit break-even volume =


unit price - unit variable cost

unit selling price - unit variable cost


Contribution Margin = unit selling price

Break-even Analysis Chart


Dollars
BE Point
Profit Variable Cost Total Cost Total Revenue

Fixed Cost Loss

Unit Volume

Applications of Contribution Analysis


Sensitivity Analysis Profit Impact Market Size Performance Measurement

Assessment of Cannibalization

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