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Marketing Strategy There are 3 key measures to watch when analyzing the income statement: gross margin...

Marketing Strategy
There are 3 key measures to watch when analyzing the income statement: gross margin percent, expense ratio, and return on sales. Since each of these measures is a percent of revenue, they can be compared over time to identify problems and improvements in margins, or they can be used to check the efficiency of a firm’s marketing.
Here are the calculations:
Create a spreadsheet showing the income statement for a company that had the following results last period.
Item
Units Sold
Unit Cost
Price
Advertising
Consumer Promotion
Personal Selling
Dealer Promotion
Product Development
Value
100,000
$40
$90
$1,500,000
$1,800,000
5 salespeople @ $80k each
$1,200,000
$700,000
1. What is the gross margin percent for the period?
2. What is the expense ratio?
3. What is the return on sales?

Solutions

Expert Solution

Amt in $

Total Sales          90,00,000
Cost of Goods Sold          40,00,000
Gross Profit          50,00,000
Selling & Admin Cost:
Advertising          15,00,000
Consumer Promotion          18,00,000
Personal Selling
[5*80,000]		            4,00,000
Dealer Promotion          12,00,000
Product Development            7,00,000
Total Selling & Admin Cost          56,00,000
Net Income / (Loss)          (6,00,000)

Gross margin (%) = Gross Proit / Sales * 100 = 50,00,000 / 90,00,000 = 55.56%

Expense ratio (%) = Total Selling & Admin Expenses / Sales *100 = 56,00,000 / 90,00,000 = 62.22%

Return on sales (%) = Net Income / Sales *100 = -600,000 / 90,00,000 = -6.68%

ekkarill92 answered 2 years ago
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