Chapter 15-Cost and Profitability Analysis
What can be done from the findings of MCA?
-adjust territorial boundary lines -eliminate certain territories -closer supervision of select salespeople -eliminate, redesign certain products -take steps to increase average order size -eliminate unprofitable customers or redirect them
What are some problems with MCA?
-can be expensive in time, money, and personnel -difficult to determine how to allocate indirect costs
Methods for allocating Indirect costs
1. Divide cost equally among territories 2. Allocate costs in proportion to sales volume obtained from each territory 3. Allocate indirect costs in same proportion as the total direct costs
8 ways to increase Order Size
1. Educate customers who buy from several suppliers to purchase from one supplier 2. Stress advantages of ordering once/month rather than once/week 3. Educate the sales force 4. Substitute direct mail or telephone selling for sales calls or unprofitable or small0order accounts 5. Shift an account to a wholesaler or some other type of middlemen 6. Drop mass distribution and go to selective one 7. Minimum order size 8. Minimum charge
What are the three types of MCA analyses?
Analysis of Ledger Expenses -examines costs as they are recorded in the company's accounting ledgers Analysis of Activity Expenses -identifying the major activities associated with the firm's marketing program Analysis of Activity costs by Market Segments -analyzes not only costs, but also the profitability of each segment of the market
What is Marketing Cost Analysis?
Detailed study of a firm's marketing costs -finds profitable and efficient areas -discovers unprofitable segments & inefficient performing functions
Direct vs Indirect Expenses
Direct costs are those incurred in connection with a single unit of sales operations Indirect costs are those shared by more than one market segment
Contribution Margin vs Full-Cost Method
Full cost includes indirect expenses in it
What is MCA used for?
Planning to control future operations