Music, Music, Music Company has just completed a study suggesting that sales of two of its products, sheet music and compact disks, could be increased by spending more on advertising. The following table shows how many additional units of the two products could be sold if advertising for each is increased:

Amount Spent on Additional Sales Advertising Sheet Music of Sheet Music 400 units 800 Amount Spent on , Additional Sales Advertising Compact Disks of Compact Disks 400 disks 800 Sheet music has a contribution margin of $7.00 per unit, and compact disks have a contribution margin of $6.00 per unit. The company has a total of $4,000 to spend on additional advertising. The head of marketing, Harry Hill, has asked your boss for a recommendation about how much to spend on advertising for each product in order to increase profit by the greatest amount, and your boss has passed the question on to you.

Required: (1) Compute the increase in the company’s profit if the $4,000 is spent on advertising sheet music alone.

(2) Compute the increase in the company’s profit if the $4,000 is spent on advertising compact disks alone.

(3) Compute the increase in the company’s profit if only $3,000 is spent on advertising sheet music alone. How do you explain the difference between this increase in profit and the increase in profit you computed in (1)?

(4) Write a memo to Mr. Hill (sending a copy to your boss) recommending how much additional advertising to spend on each product (up to $4,000 total) in order to increase profit by the greatest amount. Be sure to include the reasoning behind your recommendation. TYK-1