Differential .Analysis for Sales Promotion Proposal Essence Cosmetics Company is

Question

Differential .Analysis for Sales Promotion Proposal Essence Cosmetics Company is planning a one-month campaign for June to promote sales of one of its two cosmetics products. A total of $158,000 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 $74 $81 nit production costs: Direct materials $ 13 $17 Direct labor 4 6 Variable factory overhead 3 4 Fixed factory overhead 8 9 Total unit production costs $28 $36 Unit variable selling expenses 24 22 Unit fixed selling expenses 13 9 Total unit costs $65 $67 Operating income per unit $ 9 $ 14 No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 25,000 additional units of moisturizer or 21,000 additional units of perfume could be sold without changing the unit selling price of either product. Required: Hide Prepare a differential analysis as of June 15, 2014, to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). If an amount is zero, enter zero "0".

Explanation / Answer

Differential Analysis

Option to sell moisterizers are better because additional units will give us $78000 more profit.

Moisturizer Perfume Differential effect Sales (25000*74) = 1850000 (21000*81) = 1701000 149000 Cost Direct Material 25000*13 = 325000 (21000*17) = 357000 32000 Direct Labour 25000*4 = 100000 21000*6 = 126000 26000 Variable Overhead 25000*3 = 75000 21000*4 = 84000 9000 Fixed overheads NIL NIL Variable Selling Expense 25000*24 = 600000 21000*22 = 462000 138000 Fixed Selling Expense NIL NIL Total Cost 1100000 1029000 71000 Net Income (1850000-1100000) = 750000 (1701000-1029000) = 672000 78000

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