Marketing Costs (CMA) The Scent Company sells men’s toiletries to retail stores throughout the United States. For planning and control purposes the Scent Company is organized into twelve geographic regions with two to six territories within each region. One salesman is assigned to each territory and has exclusive rights to all sales made in that territory. Merchandise is shipped from the manufacturing plant to the twelve regional warehouses, and the sales in each territory are shipped from the regional warehouse. National headquarters allocates a specific amount at the beginning of the year for regional advertising.

The net sales for the Scent Company for the year ended September 30, 19_4, totaled $10 million. Costs incurred by national headquarters for national administration, advertising, and warehousing are summarized as follows:National administration $250,000 National advertising 125,000 National warehousing 175,000

$550,000 The results of operations for the South Atlantic Region for the year ended September 30, 19_4, are as follows:

SCENT COMPANY Statement of Operations for South Atlantic Region for the Year Ended September 30, 194 Net sales $900,000 Costs and expenses:
Advertising fees $ 54,700 Bad-debt expense 3,600 Cost of sales 460,000 Freight-out 22,600 Insurance 10,000 Salaries and employee benefits 81,600 Sales commissions 36,000 Supplies 12,000 Travel and entertainment 14,100 Wages and employee benefits 36,000 Warehouse depreciation 8,000 Warehouse operating costs 15,000 Total costs and expenses 753,600 Territory contribution $146,400 The South Atlantic Region consists of two territories—Green and Purple.
The salaries and employee benefits consist of the following items:
Regional vice-president $24,000 Regional marketing manager 15,000 Regional warehouse manager 13,400 Salesmen (one for each territory with all receiving the same salary base) 15,600 Employee benefits (20 percent) 13,600 $81,600 The salesmen receive a base salary plus a 4 percent commission on all items sold in their territory. Bad-debt expense has averaged .4 percent of net sales in the past. Travel and entertainment costs are incurred by the salesmen calling upon their customers. Freight-out is a function of the quantity of goods shipped and the distance shipped. Thirty percent of the insurance is expended for protection of the inventory while it is in the regional warehouse, and the remainder is incurred for the protection of the warehouse. Supplies are used in the warehouse for packing the merchandise that is shipped. Wages relate to the hourly paid employees who fill orders in the warehouse. The warehouse operating costs account contains such costs as heat, light, and maintenance.
The following cost analyses and statistics by territory for the current year are representative of past experience and are representative of expected future operations.
a GREEN PURPLE TOTAL Sales $300,000 $600,000 $900,000 Cost of sales $184,000 $276,000 $460,000 Advertising fees $ 21,800 $ 32,900 $ 54,700 Travel and entertainment $ 6,300 $ 7,800 $ 14,100 Freight-out $ 9,000 $ 13,600 $ 22,600 Units sold “= 150,000 350,000 500,000 Pounds shipped 210,000 390,000 600,000 Salesmen miles traveled 21,600 38,400 60,000 required 1. The top management of Scent Company wants the regional vice-presidents 16-18 to present their operating data in a more meaningful manner. Therefore, management has requested the regions to separate their operating costs into the fixed and variable components of order-getting (for example, sales commissions), order-filling (for example, freight-out), and administration. The data are to be presented in the following format:
TERRITORY COSTS GREEN PURPLE REGIONAL COSTS TOTAL COSTS Order-getting Order-filling Administration Using management’s suggested format, prepare a schedule that presents the costs for the region by territory with the costs separated into variable and fixed categories by order-getting, order-filling, and administrative functions.
. Suppose the top management of Scent Company is considering splitting the Purple Territory into two separate territories (Red and Blue). From the data that have been presented, identify what data would be relevant to this decision (either for or against) and indicate what other data you would collect to aid top management in its decision.
. If Scent Company keeps its records in accordance with the classification required in part 1, can standards and flexible budgets be employed by the company in planning and controlling marketing costs? Give reasons for your answer.