800 Rs32000 receivables Rs10000 2 Rs5000 Total Rs37000 Product B sales in

800 rs32000 receivables rs10000 2 rs5000 total

This preview shows page 18 - 21 out of 203 pages.

stocks 40 X Rs.800 = Rs.32000 receivables Rs.10000 ÷ 2 = Rs.5000 Total = Rs.37000 Product B sales in Rs.1000 X 10 = 10000 gross margin in Rs.100 X 10 = 1000 Investments: stocks 10 X 900 = 9000 receivables 10000 ÷ 4 = 2500 Total =11500 Product A Profit in Rs.2000 per month i.e., 24000 per annum on an investment of 37000 = 65 percent return on investment. Product B Profit in Rs.1000 per month i.e., 12000 per annum on an investment of 11500 = 104 percent return on investment. 18
Image of page 18
EVALUATING PRODUCTS Post the above evaluation the product B may look more attractive. This takes us to the concept that a profit center can not be evaluated on profit or margin percentge alone, the investment required also determines the viability as well as the attractiveness of the venture. Investments To keep business operational and ongoing, investments are required. Some investments may be on capital assets example, equipments, plants and machineries, cars etc. Whereas others may be on working capital example, stocks, receivables etc. The recurring costs on such investments have also to be absorbed by the business on an ongoing basis Costs of Investments Recurring costs on investments such as depreciation or diminution in value of capital assets, as well as inventory, which are in the nature of non cash costs. Finance or interest charges payable on investments made in assets of a capital nature or working nature, in this case mostly cash costs. Profit Center Profit centre vis a vis a Cost centre or an Activity centre – a profit centre has not only to deliver profits but has to deliver profits after accounting for opportunity costs for the funds deployed in the center’s activity. For running the business there would be requirements of funds. These funds are for investments in long term assets as well as short term assets. The moneys invested get blocked in this business and consequently are shut out from opportunities in any other business/investing alternative. 19
Image of page 19
EVALUATING PRODUCTS Hence we may either evaluate the use of this blocked fund from an angle of what return we are getting from this business or We load on this activity a cost for using this fund. This cost may either be what the business pays for procuring such capital or at an weighted average cost of all funds used in the organization. Marketing/Sales Function Evaluation It has to cover: Evaluation of performance Effectiveness Efficiency Cost control at Product level and Territory level 2.3 SUMMARY Functional product – is the product per se example, the cake of soap. Augmented product – service/other back ups, examples, Lux soap of good fresh quality available in the market place. Consumer products – products that are purchased for personal consumption, and non business use. Different Types of Consumer Products Convenience items. Shopping items.
Image of page 20
Image of page 21

You've reached the end of your free preview.

Want to read all 203 pages?

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors