Step 1: Identifying Functional Expenses. Assume that the expenses listedin Table 6.7 are incurred to sell the product, advertise it, pack and deliver it, and billand collect for it. The first task is to measure how much of each expense was incurredin each activity.Suppose that most salary expense went to sales representatives and the rest wentto an advertising manager, packing and delivery help, and an office accountant. Letthe breakdown of the $9,300 be $5,100, $1,200, $1,400, and $1,600, respectively. Table6.8 shows the allocation of the salary expense to these four activities.Table 6.8 also shows the rent account of $3,000 allocated to the four activities. Because the sales reps work away from the office, none of the building’s rent expense isassigned to selling. Most of the expenses for floor space and rented equipment are forpacking and delivery. The supplies account covers promotional materials, packing materials, fuel purchases for delivery, and home office stationery. The $3,500 in this account is reassigned to the functional uses made of the supplies.Step 2: Assigning Functional Expenses to Marketing Entities The nexttask is to measure how much functional expense was associated with selling througheach type of channel. Consider the selling effort. The selling effort is indicated by thenumber of sales made in each channel. This number is found in the selling columnof Table 6.9. Altogether, 275 sales calls were made during the period. Because the total selling expense amounted to $5,500 (see Table 6.8), the selling expense per call averaged $20.Advertising expense can be allocated according to the number of ads addressed tothe different channels. Because there were 100 ads altogether, the average ad cost $31.The packing and delivery expense is allocated according to the number of ordersplaced by each type of channel. This same basis was used for allocating billing andcollection expense.Step 3: Preparing a Profit-and-Loss Statement for Each Marketing Entity A profit-and-loss statement can now be prepared for each type of channel (Table6.10). Because hardware stores accounted for half of total sales ($30,000 out of$60,000), this channel is charged with half the cost of goods sold ($19,500 out of$39,000). This leaves a gross margin from hardware stores of $10,500. From this mustbe deducted the proportions of the functional expenses hardware stores consumed.According to Table 6.9, hardware stores received 200 out of 275 total sales calls. Atan imputed value of $20 a call, hardware stores have to be charged with a $4,000 selling expense. Table 6.9 also shows that hardware stores were the target of 50 ads. At
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