Chapter 25 Differential Analysis, Product Pricing, and Activity-Based Costing 1263 PR 25-3A Differential analysis for sales promotion proposal OBJ. 1 Parisian Cosmetics Company is planning a one-month campaign for September to promote sales of one of its two cosmetics 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: lalala Moisturizer Perfume Unit selling price $55 $60 Unit production costs: Direct materials $ 9 $14 Direct labor 3 5 Variable factory overhead 3 5 Fixed factory overhead 6 4 Total unit production costs $21 $28 Unit variable selling expenses 15 Unit fixed selling expenses 6 Total unit costs $49 $49 Operating income per unit $6 $11 No increase in facilities would be necessary 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 changing the unit selling price of either product. Instructions 1. Prepare a differential analysis as of August 21 to determine whether to promote mois- turizer (Alternative 1) or perfume (Alternative 2). 2. The sales 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 believed that the selection of moisturizer would reduce operating income by $8,000 ($6 operating income per unit for 22,000 units less promotion expenses of $140,000). State briefly your reasons for supporting or opposing the tentative decision. A B D E E F G H K M N Score: 14% 6 7 Key Code: Key code here 8 Instructions 9 Answers are entered in the cells with gray backgrounds 10 Cells with non-gray backgrounds are protected and cannot be edited. 11 An asterisk (*) will appear to the right of an incorrect entry. The essay answer will not be graded 12 Entera zero in cells you would otherwise leave blank. 13 1. 14 15 16 17 18 19 20 21 22 23 24 25 COCOA Differential Effect on Income (Alternative 2) 2 $ Differential Analysis Promote Moisturizer (Alt. 1) or Promote Perfume (Alt 2) August 21 Promote Promote Molsturizer Perfume (Alternative 1) (Alternative 2) Revenues $ 1,210,000 $ 1,200,000 Costs: Direct materials Direct labor Varable factory overhead Variable operating expenses Sales promotion Income (oss) (10,000) 26 27 28 29 30 31 32 Parisian should promote the 33 . 2. 34 [Key essay answer here) 35 36 GO 37 38 39 40 41 42 43 Pr. 25-3A
