L'Essence Cosmetics Company is planning a one-month campaign for June to promote sales of one of its two cosmetics products. A total of $129,000 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		$63		$69
Unit production costs:
	Direct materials	$ 11		$15
	Direct labor	4		5
	Variable factory overhead	3		4
	Fixed factory overhead	6		7
	Total unit production costs	$24		$31
Unit variable selling expenses		20		19
Unit fixed selling expenses		11		7
	Total unit costs	$55		$57
Operating income per unit		$ 8		$ 12

No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 23,000 additional units of moisturizer or 19,000 additional units of perfume could be sold without changing the unit selling price of either product.

1. Prepare a differential analysis as of June 15, 2014, to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). If an amount is zero, enter zero "0"

2. Determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2) - (Promote Moisturizer or Promote Perfume)

3. The sales manager had tentatively decided to promote perfume, estimating that operating income would be increased by $99,000 ($12 operating income per unit for 19,000 units, less promotion expenses of $129,000). The manager also believed that the selection of moisturizer would increase operating income only by, $55,000 ($8 operating income per unit for 23,000 units, less promotion expenses of $129,000). State briefly your reasons for supporting or opposing the tentative decision.

The sales manager's tentative decision should be (accepted or opposed) . The sales manager (correctly /erroneously) 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 of (moisturizer / perfume) for the promotional campaign, since this alternative will contribute (more / less)to operating income than would be contributed by promoting (moisturizer /perfume)

Differential Analysis Promote Moisturizer (Alt. 1) or Promote Perfume (Alt. 2) June 15, 2014 Promote Moisturizer (Alternative 1 Promote Perfume (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs: Direct materials Direct labor Variable factory overhead Variable selling expenses Sales promotion Income (Loss)