Polymedica Case Solution

An expense is normally incurred by a firm to generate sales, e.g. promotional expenses which are selling expenses which are directly related to the generation of sales. Most of the expenses normally form a part of operating expenses and are included in ‘cost of sales’. It may either be raw materials, labor, etc., or capitalized assets which are either depreciated or amortized over a period of time. These are known as matching costs. The other types of costs are ‘period costs’ which are mostly mentioned under S, G and A expense. There are something known as the ‘inventoriable costs’ which are normally not shown immediately in the income statement. On the other hand, assets are classified under fixed and current assets, which are mostly part of the balance sheet. Any selling or buying of assets is shown as part of ‘cash from investing’ activity. Assets are directly or indirectly related to the future revenue generation for the firm.
PolyMedica focused on direct to customer strategy to increase its customer base. Thus it focused on direct response customer right from 1996 to reach a larger portion of Medicare eligible patients to market their products. This specifically was a pretty successful campaign, as the company increased its Medicare eligible diabetes customer base from 17,000 to 545,000 in 2003.
To qualify as capitalized expenditure as assets, the direct responses expenses had to prove that the specific advertisements generated sales. Leads normally did not qualify. It has to be narrowly targeted and the response needs to be tracked. The company ran various advertising commercials on the television with each commercial being given a separate toll free number. For each customer, the firm kept a track of prescription, doctor and insurance carrier. All customer names were maintained and separate coded order forms were kept track of. Calls made to the customers, insurance carriers and doctors were written off as administrative expenses which would generally fall