Financial Aspects of Marketing Management Marketing 6201 Chip Besio Cox School of Business

Relevant Accounting Concepts Variable Costs Costs of Goods Sold Indirect Variable Costs Fixed Costs Programmed Costs Committed Costs

Relevant Accounting Concepts Relevant Costs Expected Future Marketing Related Vary According to Alternative Chosen Sunk Costs Past Expenditures Irrelevant to Future Planning Research & Development Previous Advertising Expenditures Sunk Cost Fallacy

Relevant Accounting Concepts Gross Margin Total Revenue - Total C.O.G.S. Unit Selling Price - Unit C.O.G.S. Expressed as Dollars or Percentage Can Be Impacted by a Change in: Volume C.O.G.S. Selling Price Mix of Products Sold

Relevant Accounting Concepts Trade Margin Each Level of Distribution Chain “Markup or Mark-On” Usually Determined on Selling Price Net Profit Margin Sales Revenue less: C.O.G.S. Other Variable Costs Fixed Costs Equal Net Profit Margin (Before Taxes)

Contribution Analysis Break Even Analysis Total Revenue = Total Variable Costs + Total Fixed Costs Unit Break Even = Total $ Fixed Costs / Unit Selling Price - Unit Variable Costs Unit Contribution = Unit Selling Price - Unit Variable Cost

Contribution Analysis Sensitivity Analysis Contribution Margin Has Many Applications Vary Each Element to Look at Alternative Strategies

Contribution Analysis Contribution Analysis & Market Size Variety of Contribution Analysis Choices Market is Smaller than Desired Sales Contribution Analysis & Profit Impact Break-even Not Enough Businesses Must Make Profit to Survive Unit Volume to Achieve Profit Goal = Total $ Fixed Cost + $ Profit Goal / Contribution per Unit

Contribution Analysis Contribution Analysis & Performance Measurement Evaluate Each Product in Mix Managers Should Evaluate Each Element: Unit Price Sales Volume Unit Variable Costs Total Variable Costs Unit Contribution Total Contribution Net Profit

Contribution Analysis Cannibalization Assessment New Products May Attract Existing Product’s Customers Determine the Financial Impact of New Product on Existing Products

Financial Concepts Liquidity Meet Short Time Financial Obligations Working Capital = Current Assets - Current Liabilities Operating Leverage Relationship of Fixed to Variable Costs Hi-leverage:airlines/heavy equipment Low-leverage:wholesalers internet retailers

Financial Concepts Pro-Forma Income Statements Anticipated Revenues vs. Related Costs Based on Managers Strategic Scenarios