Question -
XYZ company sells one product. Sales for 2018 are forecasted to be 200,000 units. The product is priced at $55 per unit. The product contains $11.50 of materials per unit and costs $8.25 per unit to assemble. Annual promotion costs are budgeted at $550,000. There are three sales people each earning a base salary of $50,000 per year plus 20% commission. The product is shipped in cases of 12 at a cost of $24 per case to deliver. Overhead expenses total $155,000. Create a pro forma income statement for the upcoming year, and address the following questions.
1. What is the expected revenue (total sales in dollars) for 2018?
2. What is the expected total cost of goods sold for 2018?
3. What is the expected total marketing expenses for 2018?
4. Marketing expenses represent what percentage of sales?
5. What is the projected net income for 2018?
6. During 2018 XYZ ran the following promotions:
- 1: $100,000 for Point of Purchase of Purchase Displays
- 2: $200,000 for Sweepstakes
- 3: $100,000 for Refund
- 4: $150,000 for Gift w/Purchase
Total Promotional Spending for 2018: $550,000
At the end of 2018, XYZ commissioned a marketing research study to determine the change in net profit that could be attributed to each of the four quarterly promotions. Results are as follows:
|
Quarter
|
Q1
|
Q2
|
Q3
|
Q4
|
Total
|
|
Promotions in 2018
|
PoP Displays
|
Refund
|
Sweepstakes
|
Gift with Purchase
|
|
|
Change in Net Profit Attributable to the Promotion
|
$200,000
|
$300,000
|
-$100,000
|
$150,000
|
$550,000
|
Results from 2018
What is ROI for Gift with Purchase?
7. Based on ROI, which promotion represents the best investment?
- Point of Purchase Displays
- Sweepstakes
- Refund
- Gift with Purchase