Differential Analysis for Sales Promotion Poroposal L\'Essence Cosmetics Company

Question

Differential Analysis for Sales Promotion Poroposal

L'Essence Cosmetics Company is planning a one-month campaign for June to promote sales of one of its two cosmetics products. A total of $137,000 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: No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 28,000 additional units of moisturizer or 23,000 additional units of perfume could be sold without changing the unit selling price of either product. 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

Revenue

1= 28000*70

=1960000

2

=2700*77

=177100

* Costs, except sales promotion, are the costs per unit multiplied by the increase in unit volume for each cosmetic. Fixed costs are not relevant to the decision, so are not included.

Concluion

Company should promote moisturizer.  

Differential Analysis Promote Moisturizer (Alt. 1) or Promote Perfume (Alt. 2) August21-2014 Promote Moisturizer (Alt. 1) Promote
Perfume (Alt. 2) Differential
Effect
on income
((Alternative 2) Units 28000 23000 Revenues 1960000 1771000 189000 Costs:* Direct Material 364000 391000 -27000 Direct Labour 112000 138000 -26000 Variable factory overhead 84000 92000 -8000 Variable Selling expenses 364000 184000 180000 Income (Loss)
Revenue-Cost 1036000 966000 70000

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