CVP, alternative advertising cost structures. Beverage Products is currently negotiating with Consumer Impact, its prestige advertising agency. Consumer Impact (CI) will design and develop a new set of five advertisements for Diet Super Cola. CI has traditionally been paid a 157c commission on the amount that Beverage Products pays television stations to run its advertisements. In its recent campaign, Beverage Products paid television stations

$5,000,000 to run Diet Super Cola advertisements over a three-month period. As a result, CI was paid $750,000 (S5,i 0,000 x 0.15) for its advertising work. Thus, the total cost of advertising to Beverage Product- is $5,750,000.

The new marketing lirector of Beverage Products argues that the 15% commission is much too high and asks CI for a lower percentage. CI suggests an alternative compensation plan of a $400,000 fixec payment plus a 57 commission on television advertising payments.

Required 1. Graph the advertising agency cost of Beverage Products as a function of television advertising dollars for Diet Super Cola for:

a. the traditional 15 commission cost structure b the S400,000 plus % commission t structure