Cleopatra Cosmetics Company is planning a one-month campaign forMay to promote s
ID: 2457932 • Letter: C
Question
Cleopatra Cosmetics Company is planning a one-month campaign forMay to promote sales of one of its two cosmetics products. Atotal of $110,000 has been budgeted for advertising, contestsredeemable coupons, and other promotional activities. Thefollowing data have been assembled for their possible usefulness indeciding which of the products to select for the campaign:
Moisturizer Perfume
Until sellingprice $56 $75
Until productioncosts:
Directmaterials $10 $14
Directlabor 5 8
Variable factoryoverhead 3 5
Fixed factoryoverhead 8 8
Total unit productioncosts $26 $35
Unit variable sellingexpenses 12 18
Unit fixed selling expenses 4 2
Total unitcosts $42 $55
Operating income perunit $14 $20
No increase in facilities would be necessary to produce and sellthe increased output. It is anticipated that 10,500 additionalunits of moisturizer or 8,000 additional units of perfume could besold without changing the unit selling price of either product.
Instructions:
Note: 1. Differential income, moisturizer,$163,000
Explanation / Answer
1. Differential Income Cleopatra company Differential analysis Moisturizer Perfume Revenue 588,000 600,000 56*10,500 75*8,000 Production costs Directmaterials 105,000 112,000 Directlabor 52,500 64,000 Variable overhead 31,500 40,000 selling expenses V.selling expense 126,000 144,000 Promotion expenses 110,000 110,000 Total costs 425,000 470,000 Operating Income 163,000 130,000 2. I would go for moisturizer because the contribution margin isgreater for moisturizer compare to perfume. Moisturizer Perfume Salesprice 56 75 Variable costs DM 10 14 DL 5 8 O/H 3 5 Variable sellingexp 12 18 30 45 CM 26 30 For moisturizer 26 *10,500 units = $ 273,000 perfume 30 * 8,000units = $ 240,000
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