Question
A Cosmetic Company is planning a one-month campaign for September to promote sales of one of two cosmetic products. A total of $140,000 has been
A Cosmetic Company is planning a one-month campaign for September to promote sales of one of two cosmetic products. A total of $140,000 has been budgeted for advertising, contests, redeemable coupons, and other promotional activities. The following data have been assembled for their possible usefulness in deciding which of the products to select for the campaign:
Moisturizer Perfume
Unit selling price $55.00 $60.00
Unit production costs:
Direct material $9.00 $14.00
direct labor $3.00 $5.00
Variable factory overhead $3.00 $5.00
Fixedfactory overhead $6.00 $4.00
Total unit production cost $21.00 $28.00
Unit variable selling expenses $16.00 $15.00
Unit fixed selling expenses $12.00 $6.00
Total unit costs $49.00 $49.00
Operating income per unit $6.00 $11.00
No increase in facilities would benecessary to produce and sell the increased output. It is anticipated that 22,000 additional units of moisturizer or 20,000 additional units of perfume could be sold from the campaign without charging the unit selling price ofeither product.
- Display a differential analysis as of August 21 todetermine whether to promote moisturizer ( Alternative 1) or perfume ( Alternative 2).
- The manager had tentatively decided to promote perfume, estimating that operating income would be increased by $80,000 ($11 operating income per unit for 20,000 units less promotion expenses of $140,000). The manager also believes that the selection of moisturizer would reduce operating income by $8,000 ( $6.00 operating income per unit for 22,000 units less promotion expenses of $140,000). What is the reasons for supporting or opposing the tentative decision.
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