ch13lec

# ch13lec - Margins Ch 13 14 Price Total Gross Margin or...

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1 Ch 13 & 14 Price Total Gross Margin or Gross Profit dollar amount : Net sales - Cost of goods sold = Gross profit margin (or expressed as a percentage) Margins Unit Gross Margin or Gross Profit dollar amount : Unit Sales price minus Unit Cost of goods sold = Unit Gross profit margin or as a percentage Manufacturer -> Wholesaler -> Retailer --> Customer Percentage Margin can be computed on the basis of unit cost or unit selling price Trade Margin Manufacturer -> wholesaler -> retailer --> customer Retailer buys a unit for \$10 and sells it for \$20 …that is a \$10 margin Margin as a percentage of selling price = Margin as a percentage of cost = Trade Margin Manufacturer -> wholesaler -> retailer --> customer Retailer buys a unit for \$10 and sells it for \$20 …that is a \$10 margin Margin as a percentage of selling price = 10/20= 50% Margin as a percentage of cost is 100% Trade margins are usually determined on the basis of selling price Trade Margin

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2 Manufacturer -> wholesaler -> retailer --> customer Wholesaler buys a unit for \$2 and seeks a 30% margin on this item based on selling price What would be the selling price? Trade Margin Suppose a manufacturer suggests a retail list price of \$6.00 If retailers have a policy of obtaining a 40% margin based on selling price, at what price must the manufacturer sell the product to retailers? Trade Margin Suppose a manufacturer suggests a retail list price of \$6.00 If retailers have a policy of obtaining a 40% margin based on selling price, and the wholesale distributor wants a 20% margin, at what price should the manufacturer sell the product to the wholesaler ? Trade Margin unit c o g s unit s p gross margin as % sales pr Manuf. \$2 \$2.88 30.6% Whols 2.88 3.60 20 Retailer 3.60 6.00 40 Consumer 6.00 Chain of Trade Margins The margin on many grocery store items is 25% If a retailer offers a 12% price discount, what increase in sales volume is needed for the retailer to justify such a discount (i.e., to do better than no discount). Price Determination Review of breakeven analysis, margins and cost
3 Expenses that are uniform per unit of output within a relevant time period, usually a budget year “cost of goods sold” -- for a manufacturer: materials, labor -- for a reseller: cost of merchandise Variable costs Expenses that are not directly tied to production, but nevertheless vary directly with volume. Sales commissions, discounts, delivery expenses Variable costs- type 2 Expenses that do not vary directly with output volume within a relevant time period., but become progressively smaller per unit of output as volume increases. Absolute amount is constant. Programmed costs …marketing expenditures (advertising) Committed costs …admin, rent Fixed Costs Sometimes a cost has elements that are fixed and others that are variable salary commissions, bonuses Fixed or Variable? Relevant --- expected in the future as the result of some marketing action and differ among marketing alternatives being considered -- If the salary of a manager will be the same regardless of which new product is introduced -- it is not a relevant cost.

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ch13lec - Margins Ch 13 14 Price Total Gross Margin or...

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