Sales Management 14 Cost Analysis

Full Cost Approach ( a.k.a. Net Profit) Sales Less: Cost of _________Sold Equal: Gross _________ Less: Operating Expenses Equal: _________ _________

Costs of Goods Sold Direct Costs –Can be specifically identified with a product or function. –E.g., inventory carrying costs (parts, labor, materials) Indirect Costs –Shared among several products or functions –E.g., travel expenses for sales rep handling several products in the line

General Administrative & Selling Expenses Specific –Can be tied to a specific product –E.g., product manager’s salary General –Cannot be directly linked with specific profit measurement (territory, salesperson, product) –E.g. sales manager’s salary

Contribution Margin Approach Sales Less: Cost of Goods Sold Gross Margin Less: Direct Selling Expenses Profit Contribution

Full Cost vs. Contribution Margin Full Cost: each unit bears its own direct cost plus its share of company-wide overhead Contribution Margin: Argues that costs should not be allocated arbitrarily; makes it difficult to measure success of the segment Contribution margin is becoming the more prevalent approach

ABC Accounting _________-_________Costing Allocate fixed costs to products (or territory, salesperson, etc.) according to the activity that creates or drives the cost.

Costs Direct selling Advertising and sales promotion Product and package design Technical product services Sales discounts and allowances Credit extensions Warranty costs Marketing research Warehouse/Handling Inventory Parking, shipping, & delivery Order processing Customer service Billing and recording of accounts receivable Returned merchandise