Marketing_Management_14th_Edition-min

APPENDIX | CHAPTER 22 655
Step 1: Identifying Functional Expenses Assume the expenses listed in Table 22.12 are
incurred to sell the product, advertise it, pack and deliver it, and bill and collect for it. The first
task is to measure how much of each expense was incurred in each activity.
Suppose most of the salary expense went to sales representatives and the rest to an advertising
manager, packing and delivery help, and an office accountant. Let the breakdown of the $9,300 be
$5,100, $1,200, $1,400, and $1,600, respectively. Table 22.13 shows the allocation of the salary
expense to these four activities.
TABLE 22.13
Mapping Natural Expenses into Functional Expenses
Natural
Accounts Total Selling Advertising
Packing
and Delivery
Salaries $ 9,300 $5,100 $1,200 $1,400 $1,600
Rent 3,000 — 400 2,000 600
Supplies 3,500 400 1,500 1,400 200
$15,800 $5,500 $3,100 $4,800 $2,400
Billing
and Collecting
Table 22.13 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 is assigned to selling. Most of
the expenses for floor space and rented equipment are for packing 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 functional uses of the supplies.
Step 2: Assigning Functional Expenses to Marketing Entities The next task is to measure
how much functional expense was associated with selling through each type of channel.
Consider the selling effort, indicated by the number of sales in each channel. This number is in
the selling column of Table 22.14. Altogether, 275 sales calls were made during the period.
Because the total selling expense amounted to $5,500 (see Table 22.14), the selling expense
averaged $20 per call.
TABLE 22.14
Bases for Allocating Functional Expenses to Channels
Channel Type Selling Advertising
Packing and
Delivery
Billing and
Collecting
Hardware 200 50 50 50
Garden supply 65 20 21 21
Department stores 10 30 9 9
275 100 80 80
Functional expense ÷ No. of Units $5,500 $3,100 $4,800 $2,400
275 100 80 80
Equals $ 20 $ 31 $ 60 $ 30
We can allocate advertising expense according to the number of ads addressed to 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 orders placed by each
type of channel. This same basis was used for allocating billing and collection expense.
Step 3: Preparing a Profit-and-Loss Statement for Each Marketing Entity We can
now prepare a profit-and-loss statement for each type of channel (see Table 22.15). Because
hardware stores accounted for half of total sales ($30,000 out of $60,000), charge this channel