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Kankakee Cosmetics Company is planning a one-month campaign for December to promote sales of one of its two cosmetics products. A total of $150,000 has

Kankakee Cosmetics Company is planning a one-month campaign for December to promote sales of one of its two cosmetics products. A total of $150,000 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:

Revenues and costs

Moisturizer

Perfume

Unit selling price

$35

$55

Unit production costs:

Direct materials

11

20

Direct labor

7

10

Variable factory overhead

3

6

Fixed factory overhead

2

6

Total unit production costs

23

42

Unit variable selling expenses

2

3

Unit fixed selling expenses

2

8

Total unit costs

27

53

Operating income per unit

8

2

Problem 2 Instructions

  1. Prepare a differential analysis as of November 2 to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2).
  2. The sales manager had tentatively decided to promote moisturizer estimating that operating income would be increased by $50,000 ($5 operating income per unit for 40,000 units, less promotion expenses of $150,000). The manager also believed that the selection of perfume would reduce operating income by $90,000 ($2 operating income per unit for 30,000 units, less promotion expenses of $150,000). State briefly your reasons for supporting or opposing the tentative decision.

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