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Question 15 Partially correct Mark 1.11 out of 2.21 Remove flag $75 $20 Sales mix Cellular Communications manufactures cell phones and two cell phone accessories: ear buds and a 12-volt (automotive) battery charger. (Each ear bud package contains a set of ear buds.) The ear buds and charger are compatible only with the Matrix cell phone. Sales prices and variable costs for each product are as follows: Cell Phones Set of Ear Buds Charger Sales $20 Variable production costs (60) (4) (5) Variable selling costs (4) (1) Contribution margin Unit sales (next year's budget) 3,920,000 1,120,000 560,000 The historical data of Cellular Communications suggest that, for each of the seven cell phones sold, two ear bud sets and one battery charger are sold. The company is currently exploring two options to increase overall corporate income for the upcoming year. The alternatives that follow would maintain the historical sales mix ratios: (2) $11 $15 $13 1. Increase corporate advertising by $2,800,000. The company estimates doing so would increase total unit sales to 6,160,000. 2. Decrease the price of cell phones to $70. The company estimates doing so would increase cell phone sales to 8,820,000 units and have no effect on the unit selling price of the other products. Determine the effect of each proposal on budgeted profits for the coming year. Which alternative is preferred, and what is the relative financial benefit of that alternative? Incremental benefit of choosing option one: $ 3,920,000 X Incremental benefit of choosing option two: $ 7,770,000 Choose option number Two = resulting in additional profits of $ 3,850,000 * over the other option. Check #15 Cell Phones Set of Ear Buds total #1 #2 Charger $20 Sales $75 $20 -60 -4 -5 -4 -1 -2 $11 $15 $13 Variable production costs Variable selling costs Contribution margin Unit sales (next year's budget) total $ per item: sales mix: unit sales at #1 unit sales at #2 total $ #1 3,920,000 $43,120,000 7 4312000 6174000 $47,432,000 1,120,000 560,000 5,600,000 6,160,000 8,820,000 $16,800,000 $7,280,000 $67,200,000 2 1 1232000 616000 minus 1764000 882000 inc benefit advtsng: $18,480,000 $8,008,000 $73,920,000 $6,720,000 $3,920,000 $26,460,000 $11,466,000 $74,970,000 $7,770,000 difference $3,850,000 total $ #2 #2 at $70/phone ($6 CM) 37044000