Financial Aspects of Marketing Management
Marketing 6201Chip BesioCox School of Business
Relevant Accounting ConceptsVariable Costs
Costs of Goods SoldIndirect Variable Costs
Fixed CostsProgrammed CostsCommitted Costs
Relevant Accounting ConceptsRelevant Costs
Expected Future Marketing RelatedVary According to Alternative Chosen
Sunk CostsPast Expenditures Irrelevant to Future Planning
Research & Development Previous Advertising Expenditures
Sunk Cost Fallacy
Relevant Accounting ConceptsGross Margin
Total Revenue - Total C.O.G.S.Unit Selling Price - Unit C.O.G.S.Expressed as Dollars or PercentageCan Be Impacted by a Change in:
Volume C.O.G.S. Selling Price Mix of Products Sold
Relevant Accounting ConceptsTrade Margin
Each Level of Distribution Chain“Markup or Mark-On”Usually Determined on Selling Price
Net Profit MarginSales Revenue less:
C.O.G.S. Other Variable Costs Fixed Costs
Equal Net Profit Margin (Before Taxes)
Contribution AnalysisBreak 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 AnalysisSensitivity Analysis
Contribution Margin Has Many ApplicationsVary Each Element to Look at Alternative
Strategies
Contribution AnalysisContribution Analysis & Market Size
Variety of Contribution Analysis ChoicesMarket is Smaller than Desired Sales
Contribution Analysis & Profit ImpactBreak-even Not EnoughBusinesses Must Make Profit to SurviveUnit Volume to Achieve Profit Goal = Total $
Fixed Cost + $ Profit Goal / Contribution per Unit
Contribution AnalysisContribution Analysis & Performance
MeasurementEvaluate Each Product in MixManagers Should Evaluate Each Element:
Unit Price Sales Volume Unit Variable Costs Total Variable Costs Unit Contribution Total Contribution Net Profit
Contribution AnalysisCannibalization Assessment
New Products May Attract Existing Product’s Customers
Determine the Financial Impact of New Product on Existing Products
Financial ConceptsLiquidity
Meet Short Time Financial ObligationsWorking Capital = Current Assets - Current
LiabilitiesOperating Leverage
Relationship of Fixed to Variable CostsHi-leverage: airlines/heavy
equipmentLow-leverage: wholesalers
internet retailers
Financial ConceptsPro-Forma Income Statements
Anticipated Revenues vs. Related CostsBased on Managers Strategic Scenarios