Question
Differential Analysis for Sales Promotion Proposal Parisian Cosmetics Company is planning a one-month campaign for September to promote sales of one of its two cosmetics
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Differential Analysis for Sales Promotion Proposal
Parisian Cosmetics Company is planning a one-month campaign for September to promote sales of one of its two cosmetics products. A total of $118,000 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 $60 $66 Unit production costs: Direct materials $11 $14 Direct labor 4 5 Variable factory overhead 3 4 Fixed factory overhead 5 7 Total unit production costs $23 $30 Unit variable selling expenses 19 18 Unit fixed selling expenses 11 6 Total unit costs $53 $54 Operating income per unit $7 $12 No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 24,000 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.
Required:
1a. Prepare a differential analysis as of August 21. If an amount is zero, enter "0".
Differential Analysis Promote Moisturizer (Alt. 1) or Promote Perfume (Alt. 2) August 21 Promote Moisturizer (Alternative 1) Promote Perfume (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank da73780b5fc702f_1 $fill in the blank da73780b5fc702f_2 $fill in the blank da73780b5fc702f_3 Costs: Direct materials fill in the blank da73780b5fc702f_4 fill in the blank da73780b5fc702f_5 fill in the blank da73780b5fc702f_6 Direct labor fill in the blank da73780b5fc702f_7 fill in the blank da73780b5fc702f_8 fill in the blank da73780b5fc702f_9 Variable factory overhead fill in the blank da73780b5fc702f_10 fill in the blank da73780b5fc702f_11 fill in the blank da73780b5fc702f_12 Variable selling expenses fill in the blank da73780b5fc702f_13 fill in the blank da73780b5fc702f_14 fill in the blank da73780b5fc702f_15 Sales promotion fill in the blank da73780b5fc702f_16 fill in the blank da73780b5fc702f_17 fill in the blank da73780b5fc702f_18 Income (Loss) $fill in the blank da73780b5fc702f_19 $fill in the blank da73780b5fc702f_20 $fill in the blank da73780b5fc702f_21 Promote moisturizerPromote perfume
2. The sales manager had tentatively decided to promote perfume, estimating that operating income would be increased by $122,000 ($12 operating income per unit for 20,000 units, less promotion expenses of $118,000). The manager also believed that the selection of moisturizer would increase operating income by $50,000 ($7 operating income per unit for 24,000 units, less promotion expenses of $118,000). State briefly your reasons for supporting or opposing the tentative decision.
The sales manager's tentative decision should beacceptedopposed
. The sales managercorrectlyerroneously
considered the full unit costs instead of the differential (additional) revenue and differential (additional) costs. An analysis similar to that presented in part (1) would lead to the selection ofmoisturizerperfume
for the promotional campaign, because this alternative will contributemoreless
to operating income than would be contributed by promotingmoisturizerperfume
.
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