Question

Caravan Inc., manufactures one product: bicycles. Below is some information that is used to evaluate the company’s marketing performance in fiscal year 2019 and make plans for fiscal year 2020. Use this information to calculate the required metrics.

• Bicycle price: $1,450
• Manufacturing cost: $369/bicycle
• Fixed costs: $2,500,000 overhead + $1,000,000 marketing expenses = $3,500,000 total
• Units sold: 3,587

What are Caravan’s Total Revenues?

Caravan’s Net Sales for 2019 was $5,100,000. What was their Net Marketing Contribution (NMC)?

Given their Net Marketing Contribution, what is their Marketing Return on Investment (MROI)? (express as a % and round to 2 decimal places)

What was their Marketing Return on Sales (MROS)? (express as a % and round to 2 decimal places)

Answer 1

Answer :

1. Total Revenue = Bicycle price x Units sold

= $1,450 x 3,587

= $5,201,150

2. Net Marketing Contribution (NMC) = Sales Revenue x Gross Profit % - Marketing Expenses

Gross Profit % = Gross Profit / Net Sales x 100

Gross Profit = Sales Revenue - Manufacturing cost

= $5,100,000 - ( $369 x 3,587 )

= $5,100,000 - $1,323,603

= $3,776,397

Gross Profit % = $3,776,397 / $5,100,000 x 100

= 74 %

Net Marketing Contribution (NMC) = ($5,100,000 x 74 %) - $3,500,000

= $3,774,000 - $3,500,000

= $274,000

3. Marketing Return on Investment (MROI) = (Total Revenue - Marketing Cost)  / Marketing cost x 100

= ( $5,201,150 - $3,500,000 ) / $3,500,000 x 100

= 48.6 %

4. Marketing Return on Sales = Net Marketing Contribution / Marketing cost

= $274,000 / $3,500,000

  = 7.83%