1. Chapter 2 Financial Aspects of Marketing Management

2. 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

3. 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

4. Gross Margin Total Gross Margin Dollar Amount Percentage Net Sales
$100
100%
Cost of Goods Sold
- 40
- 40
Gross Profit Margin
$ 60
60%
Unit Gross Margin
Unit Sales Price
$1.00
100%
Unit Cost of Goods Sold
- 0.40
- 40
Unit Gross Profit Margin
$0.60
60%

5. 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

6. Gross Margin as a Percentage of Selling Price
Trade Margin
Unit Cost of Goods Sold
Unit Selling Price
Gross Margin as a Percentage of Selling Price
Manufacturer
$2.00
$2.88
30.6%
Wholesaler
2.88
3.60
20.0
Retailer
3.60
6.00
40.0
Consumer
6.00

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

8. Contribution Analysis
Break-even Analysis
Unit break-even volume =
total dollar fixed cost
unit price - unit variable cost
Contribution Margin =
unit selling price - unit variable cost
unit selling price

9. Break-even Analysis Chart
Dollars
Loss
Profit
Total Revenue
BE Point
Total Cost
Variable Cost
Fixed Cost
Unit Volume

10. Applications of Contribution Analysis
Sensitivity Analysis
Profit Impact
Market Size
Performance Measurement
Assessment of Cannibalization