A Marketing Manager at an Auto Company Computed Its Promotion-To-Sales

question 146

Multiple Choice

A marketing manager at an auto company computed its promotion-to-sales ratio, that of the major competitor, and the auto industry itself. She found that the company's ratio was 2.8 percent, the competitor's ratio was 4.5 percent, and the auto industry average was 6.7 percent. She then realized

• A) she was spending too little on promotional efforts.
• B) she needed to explain these numbers to her boss, especially in relation to the industry.
• C) the competitor shortly would be taking market share from the company.
• D) she spent her promotional dollars effectively.
• E) overall the industry was wasting money on ineffective sales promotions such as cash-back offers.

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Definitions:

Fixed Costs

Costs that do not change with the level of production or sales activities, such as rent, salaries, and insurance.

Operating Leverage

A measure of how sensitive a company's operating income is to changes in revenue, indicating the degree to which fixed costs are utilized.

Absorption Costing

An accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed overhead) in the cost of a product.

Variable Costing

A costing method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.