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Betty DeRose, Inc. sells three products. Income statements for the three products for the most recent year appear below: Product #1 Product #2 Product #3

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Betty DeRose, Inc. sells three products. Income statements for the three products for the most recent year appear below: Product #1 Product #2 Product #3 $140,000 $120,000 $200,000 Sales revenue ...... Costs: Variable production costs Advertising ................. Rent ............ Supervisor's salary ......... Sales commissions ........ Net income/loss ......... 91,000 15,000 14,000 20,000 7,000 48,000 12,000 14,000 20,000 6,000 20,000 140,000 10,000 14,000 20,000 10,000 6,000 The rent is allocated to the three products equally and sales commissions are paid at a rate of 5% of sales. The company is considering eliminating Product #1. As an alternative to dropping Product #1, the company is considering increasing the advertising of Product #1. The additional advertising is expected to increase the sales of Product #1 by $100,000. Assume that if Product #1 is dropped the sales of Product #2 will increase by 25% Calculate the cost of additional advertising for Product #1 that would make Betty DeRose economically indifferent between dropping Product #1 and increasing the advertising of Product #1 and continuing to sell Product #1

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