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 595

for each customer. The sum of each of the four major components (sales, cost of

sales, expenses, and profit) is the same as on the original statement (Exhibit 20-2)—

all we’ve done is rearrange and rename the data.

For example, Smith bought 900 units of A at $10 each and 300 units of B at

$50 each—for the respective sales totals ($9,000 and $1,500) shown in Exhibit

20-6. We compute cost of sales in the same way. Expenses require various calcu-

lations. Thirty sales calls cost $300— 30 $10 each. Smith placed 30 orders at

an average cost of $12.50 each for a total ordering cost of $375. Total packaging

costs amounted to $1,530 for A (900 units purchased$1.70 per unit) and $153

for B (30 units purchased$5.10 per unit). There were no packaging costs for

C because Smith didn’t buy any of Product C. Neither were any advertising costs

Exhibit 20-5

Functional Cost Account

Allocations

Sales calls $1,000/100 calls 
 $10/call

Billing $425/34 orders 
 $12.50/order

Packaging units costs $2,312/1,360 packaging units 
 $1.70/packaging unit or

$1.70 for Product A

$5.10 for Product B

$10.20 for Product C

Advertising $425/10 units of C 
 $42.50/unit of C

Exhibit 20-6 Profit and Loss Statements for Customers

Whole

Smith Jones Brown Company

Sales

Product A $9,000 $ 900 $ 100

Product B 1,500 1,500 2,000

Product C 600 1,400

Total sales $10,500 $ 3,000 $ 3,500 $17,000

Cost of Sales

Product A 6,300 630 70

Product B 1,050 1,050 1,400

Product C 420 980

Total cost of sales 7,350 2,100 2,450 11,900

Gross margin 3,150 900 1,050 5,100

Expenses

Sales calls ($10 each) 300 400.00 300.00

Order costs ($12.50 each) 375 37.50 12.50

Packaging costs

Product A 1,530 153.00 17.00

Product B 153 153.00 204.00

Product C 30.60 71.40

Advertising 127.50 297.50

2,358 901.60 902.40 4,162

Net profit (or loss) $ 792 $ (1.60) $147.60 $ 938