Market Potential Estimates

1. Successive ratio

2. Segment build-up

3. Discount factoring

4. Extrapolation of secondary data

Managing The Product Income Statement

Variable Cost Rate=(variable cost)/(Net Sales Revenues) or

(Var. Unit Cost)/(unit Selling Price)

Variable Margin=(Net Sales Revenues)-(Variable Costs)

Var. Margin per unit= (Unit Selling Price)-(Variable Costs Per Unit)

Variable Margin Rate=(Variable Margin)/(Sales Revenues) or

(Var. Margin/Unit)/Unit Selling Price

Break-even Volume in Dollars or Other Monetary Unit

= (Fixed Costs)/Var. Margin Rate)

Break-even Volume in Units=(Fixed Costs)/(Var. Margin per Unit)

Sales Volume in Dollars to Achieve Desired Profit

=(Fixed Costs Plus Target Profit)/(Var. Margin Rate)

Sales Volume in Dollars to Achieve Desired Return on Sales

=(Fixed Costs)/(Var Margin Rate on Sales - Target % Return on Sales)

Sales Volume(units) to Achieve Profit

=(Fixed Costs + Profit Target)/(Unit Selling Price Less Unit Var. Cost

Calculating Return On Marketing Investment worksheet

For Product A

1 Break-even Volume in Dollars

2 Break-Even Volume in Units

3 Dollar Volume Required to Generate Pre-Tax Profit of $1 Million

4 Dollar Volume Required to Achieve a 10% Return on Sales

5 A sales Increase of 15% Will Give an Increase in Profit of %?

6 A Price Increase of 10% Will Give a Profit Increase of % and $

7 You are considering adding two detailmen to your sales group

What is the minimum level of sales increase that must be achieved to cover the projected cost of $60,000?

8 Your manager will only approve the addition if you can demonstrate that you will achieve a minimum 6% return on sales. You have projected an increase in sales of $400,000 with the new hires. Does this meet the requirement?

9 You are going to have cut your advertising budget by $200,000

How much sales decline can you sustain without reducing profits?

How much unit decline can there before cutting into profits?