Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

20. Managing Marketing’s
    Link with Other Functional
    Areas

Text © The McGraw−Hill

Companies, 2002

Managing Marketing’s Link with Other Functional Areas 593

The following example illustrates these ideas. This case is simplified, and the

numbers are small, so you can follow each step. However, you can use the same

basic approach in more complicated situations.

In this case, the usual financial accounting approach, with natural accounts,

shows that the company made a profit of $938 last month (Exhibit 20-2). But such

a profit and loss statement doesn’t show the profitability of the company’s three cus-

tomers. So the managers decide to use marketing cost analysis because they want

to know whether a change in the marketing mix will improve profit.

First, we distribute the costs in the five natural accounts to four functional

accounts—sales, packaging, advertising, and billing and collection (see Exhibit

20-3)—according to the functional reason for the expenses. Specifically, $1,000 of

the total salary cost is for sales reps who seldom even come into the office since

their job is to call on customers; $900 of the salary cost is for packaging labor; and

$600 is for office help. Assume that the office force split its time about evenly

between addressing advertising material and billing and collection. So we split the

$600 evenly into these two functional accounts.

The $500 for rent is for the entire building. But the company uses 80 percent of

its floor space for packaging and 20 percent for the office. Thus $400 is allocated

to the packaging account. We divide the remaining $100 evenly between the adver-

tising and billing accounts because these functions use the office space about equally.

Stationery, stamps, and office equipment charges are allocated equally to the latter

two accounts for the same reason. Charges for wrapping supplies are allocated to

the packaging account because these supplies are used in packaging. In another

Cost analysis helps

track down the loser

Exhibit 20-2

Profit and Loss Statement,

One Month

Sales $17,000

Cost of sales 11,900

Gross margin 5,100

Expenses:

Salaries $2,500

Rent 500

Wrapping supplies 1,012

Stationery and stamps 50

Office equipment 100

4,162

Net profit $ 938

Exhibit 20-3 Spreading Natural Accounts to Functional Accounts

Functional Accounts

Billing

and

Natural Accounts Sales Packaging Advertising Collection

Salaries $2,500 $1,000 $ 900 $300 $300

Rent 500 400 50 50

Wrapping supplies 1,012 1,012

Stationery and stamps 50 25 25

Office equipment 100 50 50

Total $4,162 $1,000 $2,312 $425 $425