Download - Marketing Cost Control
MARKETING COST CONTROL
MARKETING FINANCE
CONTROL ANALYSIS EVALUATION
COST CONTROL
CONTROL
Action taken to achieve a conformity of the
actual result with the planned result
Presupposes effort direct towards a
desired result
PRIMARY COST
FACTORY COST
TOTAL COST
COST OF SALES
FOUR STAGES OF COSTING
MATERIALS LABOUR OVERHEADS
THREE ELEMENTS OF COSTS
DIRECT COSTS/PRIME COSTS
INDIRECT COSTS/OVERHEADS
TWO TYPES OF COSTS
PRINCIPLES OF COST DETERMINATION
DISTRIBUTION COST CONTROL
The Product Approach
TESTS FOR ASSESSING DISTRIBUTION EFFICIENCY
To ensure that the right product is offered for sale since volume of sales and earnings depend upon a firms distribution expenses besides the salesman’s efficiency
The Product-line Approach
Products suitable for a line should be sold in the same market and should be distributed through the same channel as this will reduce marketing cost
The Channels Approach
Choice of right channel to control distribution costs & provide more efficient distribution…. Revamp structure of discounts & commissions.
The Engineering Approach
Managing distribution activities like, transportation & storage to make available goods at proper places & proper quantities.
The Accounting Approach
It involves the classification of a firms distribution expenses, volumes & earnings by salesmens’ territories, salesmen, regions, products. Resulting comparison of expenses, volumes & earnings are helpful in indicating comparative profitability
The Operations Research Approach
Offers many possibilities of alternatives in minimizing efforts & costs in accomplishing a given end
The Economic Approach
Is concerned with changing market conditions, sales potential of markets, areas & the application of selling, advertising and other such efforts under conditions of diminishing returns to the point of marginal balance between expenditure income and further to the point of maximum total profit or minimum loss.
The Personnel Approach
Aims to study the distribution costs from e personnel perspective since the distribution personnel entail costs on selection, training, compensation to compare their productivity with reference to the costs incurred on them.
The Organizational Approach
Effective organization is a prime requisite in accomplishing efficient distribution. The organization as a whole should be capable of performing the task of distribution efficiently.
The Standardization Approach
Distribution comprises a multitude of activities in which the human element looms large and there is likelihood of variation in performance because of lack of standardization. Standardization of various activities may be an important contribution to economical distribution.
The Management Approach
This includes and employs all the other approaches It uses these approaches & methods in analyzing the results of its past plans and programmes to decide the appropriate course of action.
The management approach to accomplishing new distribution efficiency includes a willingness to venture on new paths with risks minimized by a maximum of knowledge gained by the analysis of past experience, but also by scientifically conducted experiments how improved distribution may be successfully obtained.
Physical Distribution Cost
Direct costs Indirect costs Overheads
Transportation cost
Inventory cost
Warehousing cost
Material handling cost
Cost of capital
Cost of transport equipment
Cost of material handling equipment
Salaries &wages
Administrative expenses
PHYSIACAL DISTRIBUTION FUNCTION IN AN ORGANIZATION
LocationalAnalysis Trans-
portation
MaterialHandling
Ware-housing
Packaging
CustomerService
OrderProcessing
PhysicalDistribution
Inventory Control
Cost Identification
All costs associated with performance of a distribution function should in the activity based cost classification. The total cost associated with forecasting, order management, transportation, inventory, warehousing and packaging must be isolated.
COST FORMATING
Functional grouping
Allocated cost formatting
Fixed-variance grouping
All expenditures for direct and indirect logistical services in a specified operating time are formatted & reported under sub-accounts classification.
Overall logistical expenditure is assigned to a measure of physical performance. This will generate logistical cost per tonne, per unit,per product, etc.
Assigning costs either fixed or variable cost to the operating expenditure that results from different volumes of logistical activity.
ACTIVITY BASED COSTING
The basic purpose of activity based costing is to give
managers a better perspective of total costs associated with
the performance of a specific activity.
COMPONENTS OF DISTRIBUTION COSTS
Transportation costs
Inventory carrying costs
Warehousing costs
Production or supply costs
Channels of distribution costs
Communication & Data Processing Cost
Material handling costs
Packaging costs
Customer service Costs
THE TOTAL COST APPROACH TO DISTRIBUTION COST
WarehousingNumber Type Location
Will affect both service & costs
Inventory Carrying
Insurance Occupancy Pilferage losses Inventory taxes
This group cost may range from 10 to 30 per cent of inventory value
Inventory Obsolescence
Model changes Style changes Perish ability
Important cost for companies
Production or supply alternatives
The decision on which plant should serve which customers must give weight not only to transportation but also to supply and production cost.
Cost concessions
Distribution decisions can affect costs otherwise incurred by suppliers and customers.
Channels of distribution
The choice of distribution channels profoundly affects its physical distribution facilities and the resultant costs.
TransportationA significant part of distribution entailing cost on movement of goods which keep changing because of various factors.
Communication & data processing
TOTAL COST APPROACH
The total cost approach was used by a division of a large
manufacturing company . This division does an annual
business of about $45 million, with over 3000 customers
located in every state . It has plants and warehouses at five
points across the country, shipping to customers via both
rail and road.
PTO
ANNUAL BUSINESS $ 45 million
CUSTOMERS (Located in every state/District) 3000
PLANT/WAREHOUSE LOCATIONS 5
MOVEMENT Rail/Road
PROFIT IMPACT OF DISTRIBUTION - GAINS/(LOSSES) (MILLION $) WAREHOUSING (14.4) TRANSPORTATION 0.5 Total distribution cost (13.9) INVENTORY Carrying costs 1.4
Obsolescence costs 4.3 Value of alternative use facilities 7.8 Total 13.5 PRODUCTION & PURCHASING
Production & raw material costs 0.2 Reduced costs of purchased finished goods 6.7 Total 6.9 DATA PROCESSING (0.2) MARKETING Channels of distribution 0.2 Customer service 1.4 Total 1.6 TOTAL PROFIT IMPACT OF 21.8 DISTRIBUTION RELATED ITEMS
PRE TAX PROFIT INCREASE 7.9
ISSUES
1. Without any major investment can we increase the profits by changing the distribution system ?
2. Can the total cost be reduced by shifting some of the available equipment from one factory to another ?
3. Can the costs be reduced and profits increased by changing the marketing approach ?
4. Is there any profit advantage in changing the capacity of one or more of the present plants , or perhaps building a new facility at another location ?
5. Could we further improve profitability by changing warehouse capacities or locations ?
PLANT- A
Warehouse –1
Warehouse –2
Warehouse –3
Warehouse – 4
Warehouse –5
District
District
District
District
District
District
District
District
District
District
District
District
DistrictDistrict
District
District
District
District
District
PLANT- B
PLANT- C
PLANT- D PLANT- E
Step-1
Shipment by Rail
Shipment by Truck
Freight Paid
Freight To Pay
Freight Paid
Freight To Pay
Broken Down Into Districts
Revealed
What percentage of sales came into the 160 districts By Rail By Trucks
By Freight Paid By Freight To Pay
The Company know where the products were going and how they were going to get there
PLANT - A Warehouse -1
PLANT - B
PLANT - C
PLANT - D
PLANT - E
Warehouse -2
Warehouse-3
Warehouse -4
Warehouse -5
WHICH DISTRICTS
WHICH DISTRICTS
WHICH DISTRICTS
WHICH DISTRICTS
WHICH DISTRICTS
Step-2
Step-3
Arrive at total cost curves for all plants and warehouses
0 300 600 900 1200 1500 1800 2100
2
4
6
8
10A B C D E
1Rearrange Company’s distribution pattern and make appropriate shifts in production and production loads
2 Reduce materials cost
3 Transportation overstressed
4 Shifting equipment from one plant to another
5 Shifting from truck delivery to rail delivery
6 Additional capacity to certain warehouses
ACTION PROFITS
1. Rearranging Company’s distribution pattern $ 492,000 2. Reduced material costs $ 126,000 3. Warehousing operations $ 138,000 4. Reduction in direct labour costs in plants $ 57,000 5. Reduction in plant overheads $ 27,000 6. Reduction in transport costs $ 54000 7. Shifting of equipment from $ 180,000 one plant to another 8. Shift from truck to rail delivery $ 447,000 9. Addition capacity to warehouse $ 75,000
TOTAL $ 750,000