for all you business math types

[Apotheosis]

I'm working on a small case study, and it turns out that none of the equations that we have gone through in the current class apply to this particular study.


In any case, I'm looking for a basic % of sales formula so I can figure out how I can develop the budget.

Here's the issue:


When looking at yearly budgeting, this corporation allocated $600,000 for print advertising. They claim that this is .26% of sales, however, for the year they budgeted their total sales were $120.5 million ($5 million after-taxe earnings)


One would assume you go .26% * (120,500,000), however that = $31,000,000

Multiplying .0026 * 120,500,000 get's to about 1/2 the budget.

so, basically, something doesn't seem right with the data, or I am not looking at it the right way.

[Ravenstorm]

$313,300 would be .26% of 120.5 mil.

$600k is about .495%.

Raven

[Apotheosis]

Exactly, Raven. That's why this case is slightly confusing.

[radamanthys]

it's almost exactly double their projection. Either the projection is wrong, or for some reason they halved their post-tax sales, or doubled the percentage. .00259 or so.

[Apotheosis]

That's what I'm trying to figure out, but those are the only numbers given regarding sales for the year 2001. Time to harass the professor :D

That's what I'm trying to figure out, but those are the only numbers given regarding sales for the year 2001. Time to harass the professor :D


edited to add:

My bad, that was just part of a line item budget where they actually spent .497% of sales for advertising. 52% of that was spent on that particular line


so, total sales = 120.5 million

Ad Budget for 2001

National, veritcal boating magazines $312,000 (52%)

Dealer catalogs/consumer brochures $66,000 (11%)

cooperative newspaper and advertising with dealers 90,000 (22%)

Production costs $90,000 (15%)

So total budget = 600,000 (100%)



DUHHHHHH

:D



[Edited on 12-12-0505 by Yswithe]

[Atlanteax]

It seems reasonable to state the belief that this corporation spends nearly 50% of its budget on advertising.

(it possibly could be that this company is advertising-heavy with low fixed costs ... with sales covering the variable costs)

You can then follow up inquiring why the corporation needs to spend so much on advertising if it's trying to work with a limited budget, or suggest that it is understating its desired budget.

It does not seem to specify what kind of corporation it is... I do not know if that is all the information you were given (otherwise, you're only showing us one piece of a puzzle).

[Apotheosis]

It's just a case study for a marketing strategy course. This is relating to craft marine. Basically, the issue was regarding how much $$ to allocate for the new year budget (regarding advertising). Note that it is not 50% of sales, that would be absurd.

.497% = .00497 * 120.5 mil = roughly $600,000


The overall problem I am dealing with is figuring how much to budget based on qualitative and quantitive analysis. (SWOT, identifying alternative solutions, then using math to figure out the actual data).


I'm just trying to hash out the "math" part of this by looking at last years budget, how it was allocated, and determine how much to budget NOW based on projected industry sales compared with current market share of the company. I'm also deciding where to allocate the majority of the budget. (taking into consideration external threats/opportunities), as well as the objectives of the organization and the advertising.



[Edited on 12-12-0505 by Yswithe]

[Apotheosis]

Does that make sense? :D

[Daniel]

First thing that comes to mind is that allocated doesn't neccessarily equate to actual expenditures. Otherwise, I'd want to know wtf you mean by $5million after taxe, meaning they paid 115 mil in taxes?

[Apotheosis]

The 5 million after tax-earnings has absolutely nothing to do with this problem (just a side note added to throw people in the wrong direction). It's not important.

Pre tax sales for 2001 = $120,500,000
Advertising budget for 2001 = $600,000 (actual expenditure)

Therefore, reading between the lines, they budgeted .497% of sales for advertising, meaning, .00497 * 120,500,000 = $600,000 (more or less)

It was broken down into categories, meaning, of the $600,000 budgeted, 26% of that (or .26 * 600,000 = 312,000) was spent on magazine advertising.



The problem I had was, initially, figuring out what % of sales was budgeted/spent on advertising. The reason was because I was not reading the details carefully enough.


When you take a look at total sales of a corporation, that does not necessarily equal profit or earnings. Profit comes after all expenses are paid off (or not paid off).

IE: if a company sells 1,000,000,000$ worh of goods, you can damn well bet the majority of that will be eaten up by cost of production, taxes, other fees, etc.

[Edited on 12-12-0505 by Yswithe]

[Apotheosis]

for those who don't know:

Generally, in stable economic times, corporations (also called advertisers) will sometimes use a % of sales to budget their advertising. In stable economic times, this is usually a fairly reasonable method of doing things.

Most companies will budget 5 - 10% as a rule of thumb.

So, lets say I have $500,000 total sales for the previous year. 10% of 500,000 would be 50,000.

So, I've now set aside (for the next year), 50,000 to spend on print, radio, really, whatever I can get with 50,000 that makes sense and meets my objectives.



Granted, this changes whichever industry you are in and whatever role you play.
% of sales is an outdated method (unless you're P&G), and therefore, you should use an objective/task method of budgeting, which is a bit trickier, but makes the most sense.

[Latrinsorm]

Originally posted by Yswithe
.26 * 600,000 = 312,000This is wrong. Dunno about the business stuff.

[Atlanteax]

I'll wait till you post all of the relevant information.