Kankakee Cosmetics Company is planning a one-month campaign for December to prom
ID: 2436869 • Letter: K
Question
Kankakee Cosmetics Company is planning a one-month campaign for December to promote sales of one of its two cosmetics products. A total of $139,491 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:
1
Moisturizer
Perfume
2
Unit selling price
$55.36
$59.58
3
Unit production costs:
4
Direct materials
$9.08
$13.92
5
Direct labor
3.08
4.92
6
Variable factory overhead
3.05
4.93
7
Fixed factory overhead
6.10
3.98
8
Total unit production costs
$21.31
$27.75
9
Unit variable selling expenses
16.01
14.91
10
Unit fixed selling expenses
12.01
5.91
11
Total unit costs
$49.33
$48.57
12
Operating income per unit
$6.03
$11.01
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.
1
Moisturizer
Perfume
2
Unit selling price
$55.36
$59.58
3
Unit production costs:
4
Direct materials
$9.08
$13.92
5
Direct labor
3.08
4.92
6
Variable factory overhead
3.05
4.93
7
Fixed factory overhead
6.10
3.98
8
Total unit production costs
$21.31
$27.75
9
Unit variable selling expenses
16.01
14.91
10
Unit fixed selling expenses
12.01
5.91
11
Total unit costs
$49.33
$48.57
12
Operating income per unit
$6.03
$11.01
Explanation / Answer
Solution 1:
Solution 2:
Income from promoting moisturizer is higher than income from promoting perfumem, therefore mositurizer should be promoted.
Solution 3:
The analysis of sales manager is not correct. As sales manager is considering total cost per unit while arriving incrmental benefits from promotion, however fixed cost is not relevant for this decision and company will not incur any additional cost. Therefore only relevant cost should be compared with incremental revenue to determine the products to be promoted. Therefore in the basis of analysis done in part 1, moisturizer product should be promoted as it will result in higher profitability.
Differential Analysis Promote Moisturizer (Alternative 1) or Promote Perfume (Alternative 2) S No Particulars Promote Moisturizer (Alt 1) Promote Perfume (Alt 2) Differential Effect on Income (Alt 2) 1 Additional Sales revenue $1,217,920.00 $1,191,600.00 -$26,320.00 2 Additioal relevant Costs: 3 Direct material $199,760.00 $278,400.00 $78,640.00 4 Direct labor $67,760.00 $98,400.00 $30,640.00 5 Variable factory overhead $67,100.00 $98,600.00 $31,500.00 6 Variable selling expenses $352,220.00 $298,200.00 -$54,020.00 7 Additional advertising cost $139,491.00 $139,491.00 $0.00 8 Total additional relevant cost $826,331.00 $913,091.00 $86,760.00 9 Additonal net income $391,589.00 $278,509.00 -$113,080.00Related Questions
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