Question

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?

Answer 1

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%