Use the following information to answer Question (13) Lilac Cosmetics Company ma

Question

Use the following information to answer Question (13) Lilac Cosmetics Company makes a variety of cosmetic and beauty products. The company is planning a promotional sales campaign of one of its two cosmetic products The campaign will last one month and Lilac has budgeted $45,000 for promotional activities. The following data have been assembled for purposes of deciding which of the product lines to select for the campaign. Perfume Cologne $47.00 $68.00 (per unit) Selling Price Production Costs: 12.00 7.00 3.00 4.002.00 0 400 26.00 12.00 3.00 410059,00 6.00 9.00600 Direct Materials Direct Labor Variable Overhead 18.00 12.00 00 5.00 300 2 r Fixed Overhead 37.00 21.00 ?00 Total Production Cost Variable Selling Expenses Fixed Selling Expenses Total Cost Operating Profit per Unit * Does not include proposed promotional costs of $45,000 No increase in production facilities would be necessary to produce and sell the budgeted volume of cologne or perfume. The extra activity will not increase existing fixed costs or disrupt existing production in any way. Lilac anticipates that 10,000 additional units of perfume or 10.500 additional units of cologne could be sold due to the promotional campaign (13) Lilac: (a) should promote perfume because the increase in total company income is greater than would be obtained by promoting cologne (b) should promote cologne because the increase in total company income is greater than would be obtained by promoting perfume (c) should promote neither product because the incremental unit sales volume would not (d) is indifferent between promoting either product yield enough benefit to cover the $45,000 promotional campaign costs

Explanation / Answer

             49,500

a) Should not produce or promote perfume

b.) Should promote cologne

C) No IT Should promote cologne

d.) Indifferance point = Change in Fixed cost/ Change in V.C

=700000-31500/34-22= 3208 units ( Rounded off)

P    C Profit of P Profit of C S.P 47    68          10,000           470,000          10,500           714,000 LESS: D.M             (12)             (18)          10,000         (120,000)          10,500         (189,000) D.L               (7)             (12)          10,000           (70,000)          10,500         (126,000) V.O.H               (3)               (5)          10,000           (30,000)          10,500           (52,500) F.O.H               (4)               (2)          10,000           (40,000)          10,500           (21,000) V.S.E             (12)             (21)          10,000         (120,000)          10,500         (220,500) F.S.E               (3)               (1)          10,000           (30,000)          10,500           (10,500) Profit                 6                 9          10,000              60,000          10,500              94,500 Additional F.O.H           (45,000)           (45,000) Net profit              15,000

             49,500

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