Question
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
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:
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 | 16 | 15 |
Unit fixed selling expenses | 12 | 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.
Required: | |
1. | Prepare a differential analysis as of August 21 to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. |
2. | Determine whether to promote moisturizer (Alternative 1) or promote perfume (Alternative 2). |
3. | 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. |
Differential Analysis
Shaded cells have feedback.
1. Prepare a differential analysis as of August 21 to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
Score: 76/143
Differential Analysis |
Promote Moisturizer (Alternative 1) or Promote Perfume (Alternative 2) |
August 21 |
1 |
| Promote Moisturizer | Promote Perfume | Differential Effect on Income |
2 |
| (Alternative 1) | (Alternative 2) | (Alternative 2) |
3 | ||||
4 |
|
|
| |
5 |
|
|
| |
6 |
|
|
| |
7 |
|
|
| |
8 |
|
|
| |
9 |
|
| ||
10 |
|
|
| |
11 |
|
|
|
Points:
17.54 / 33
Feedback
Check My Work
1. Subtract the variable costs, including the promotion costs, from the revenues for each product, based on proposed production. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2.
Final Questions
Shaded cells have feedback.
2. Determine whether to promote moisturizer (Alternative 1) or promote perfume (Alternative 2).
Promote moisturizer.
Promote perfume.
The company is indifferent since the result is the same regardless of which alternative is chosen.
Points:
1 / 1
3. 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.
The sales managers tentative decision should be opposed . The sales manager 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 for the promotional campaign because this alternative will contribute more to operating income than would be contributed by promoting perfume .
Differential Analysis Score: 76/143 Promote Moisturizer (Alternative 1) or Promote Perfume (Alternative 2) August 21 Promote Differential Effect 1 Promote Perfume Moisturizer on Income 2 (Alternative 1) (Alternative 2) $1,210,000.00 $1,200,000.00 (Alternative 2) $(10,000.00) 3 Revenues 4 Costs: 5 Direct materials 198,000.00 280,000.00 (82,000.00) 6 Direct labor 66,000.00 100,000.00 (34,000.00) 7 Variable factory overhead 66,000.00 100,000.00 (34,000.00) 8 Variable selling expenses 352,000.00 300,000.00 52,000.00 9 Sales promotion 140,000.00 140,000.00 0.00 10 Total costs 822,000.00 920,000.00 98,000.00 11 Income (Loss) $388,000.00 $280,000.00 $(108,000.00) Points: 17.54 / 33Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started