The McWilliams Bottling Company bottles and markets under license a major brand-name soft drink. Prices of soft
Question:
The McWilliams Bottling Company bottles and markets under license a major brand-name soft drink. Prices of soft drinks are virtually dictated by the market and the preponderance of dis¬ pensing machines that require a time-consuming adjustment in order to allow price changes to be effected. In the regional market that it serves, McWilliams has noticed that quantity de¬ manded responds to variations in the level of advertising and promotional expenditures. The firm has kept the following records of sales (units) and advertising and promotional expendi¬ tures over the past two years:
McWilliams’s present advertising and sales (units) levels are $4,000 and 99,500 units. Contribution margin (per unit) is considered to be constant at $0.22. The marketing depart¬ ment at McWilliams feels that there were no significant changes in any factors that would pre¬ vent the above data from being used to reliably estimate the firm’s sales/advertising function.
(a) Plot the sales data against the advertising expenditures and sketch in what appears to be the line of best fit to the data.
(b) Please advise McWilliams as to the estimated optimal level of its advertising and promo¬ tional expenditures. Explain and defend your recommendation.
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