While the general method would be to find out and compare the net margins as a

While the general method would be to find out and

This preview shows page 49 - 53 out of 203 pages.

While the general method would be to find out and compare the net margins as a percentage of sales (higher the better), and in which context, we described earlier, why apportionment on the basis of respective sales is the most equitable method, we can also evaluate how each center head has been able to manage the expenses. For this typical yard sticks would be: productivity of sales personnel , i.e., Sales per head, gross margins earned per head Product Target Gross margin Actuals Achieved Gross margin Sales Rs. Gross margin Rs. Percentage Sales Rs. Gross margin Rs. Percentage A 2000 300 15percent 3000 450 15 percent B 3000 1200 40percent 2000 800 40 percent C 1000 100 10percent 4000 400 10 percent D 4000 2000 50percent 2000 1000 50 percent total 10,000 3600 36 percent 11,000 2650 24 percent 49
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TERRITORY AND PRODUCT LEVEL PROFITABILITY travelling expenses as an overall percentage of sales, value of stocks held per “000 expenses on warehouses, secondary freight incurred in sending goods to distributors, etc. From the Dupont control chart, we have also observed that the profit center’s performance must factor in investments made in the center. In case of typical marketing/sales setups, investment is normally in the following areas: 1. Inventory/stocks of finished goods 2. Idle cash/Bank balance lying in collection accounts 3. Market outstanding 4. Amount paid against future expenses 5. Advances given to the suppliers The above constitute assets. Vis-a-vis the above assets, the organization may have received: 1. Products and services for which payments have not been made 2. Advances from customers 3. Security deposits from Business associates The above constitute liabilities. In the Darham case after the net profits have been calculated, we have to find out the involvement in working capital . The case states, the number of days’ stock holding at each zone. Similarly the case also details the number of days’ receivables at each zone. 50
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TERRITORY AND PRODUCT LEVEL PROFITABILITY Table no: 4.10 For finding out All India stocks Rs. 2406 lacs, represent how many days’ equivalent of stocks, divide the All India stocks of Rs. 2406 lacs by Rs. 11288.25 (which is All India cost of goods sold, by 365 to get one day’s cost of goods sold, Rs. 30.9 lacs) to get 78 days. Similarly the total All India receivables of Rs. 951 lacs can be found out to represent 20 days’ receivables. (951 ÷ 17415 X 365) Thus we can see that the zones have performed as under: 1. In terms of gross margin earnings as a percent of sales, South leads with West coming second, followed by North & East as the last. North Zone East Zone West Zone South Zone All India Sales GM Sales GM Sales GM Sales GM Sales GM 3870 1360.8 5130 1728.9 5430 1943.7 2985 1093.35 17415 6126.75 cost of goods sold sale less gross margin 2509.2 3401.1 3486.3 1891.65 11288.25 total s and d expns 895.7 854.2 1219.5 812.1 3781.5 net margi ns gm less s and d expns 465.1 874.7 724.2 281.3 2345.2 Stock 75 days 516 80 days 745 90 days 860 55 days 285 78 days 2406 Receiv ables 17 days 180 18 days 253 26 days 387 16 days 131 20 days 951 Invest ments 696 998 1246 416 3357 ROI net margin ÷ invest ments 0.67 0.88 0.58 0.68 0.70 51
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TERRITORY AND PRODUCT LEVEL PROFITABILITY 2. In terms of net margin earnings as a percent of sales, the rankings change. Here East is number one followed by West, North coming third
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