Question

Problem 5.

Carbon Footwear generated $80 million in sales last year. Their variable costs were $37 million and their marketing and sales expenses amounted to $15 million. The general and administrative expenses and other operating expenses were $5 million.

Calculate

- Carbon Footwear's Net Marketing Contribution.

-The percent gross profit generated by Carbon Footwear

- Carbon Footwear’s Return on Marketing Investment.

- Carbon Footwear’s Return on Sales.

Answer 1

Compute the net contribution of the company, using the equation as shown below:

Net contribution = Sales – Variable cost

                           = $80 million - $37 million

                           = $43 million

Hence, the net contribution of the company is $43 million.

Compute the gross profit margin, using the equation as shown below:

Gross profit margin = (Sales – Variable cost)/ Sales

                                 = ($80 million - $37 million)/ $80 million

                                 = 53.75%

Hence, the gross profit margin is 53.75%.   

Compute the return on sales, using the equation as shown below:

Return on sales = (Sales – Variable cost – Operating expenses – Sales expenses)/ Sales

                         = ($80 million - $37 million - $5 million – 15 million)/ $80 million

                         = 28.75%

Hence, the return on sales is 28.75%.