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

Question

Differential Analysis for Sales Promotion Proposal

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 $189,000 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 30,000 additional units of moisturizer or 25,000 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

Moisturiser Perfume Differntial revnue Sales (Units) 30000 25000 Revenue 2160000 1975000 185000 Less: Direct Material 390000 425000 -35000 Direct Labour 120000 150000 -30000 Variable Factory OH 90000 100000 -10000 Variable selling Exp 690000 550000 140000 Sales Promotion 189000 189000 0 Total Cost -1479000 -1414000 -65000 Income( Loss) 681000 561000 120000 Since the Income from Moisturiser is higher than promoting Perfume and hence Sales promotion of Moisture is prefered

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