eBook Problem-Solving Strategy Differential Analysis for Sales Promotion Proposa
ID: 2595709 • Letter: E
Question
eBook Problem-Solving Strategy 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 $151,000 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 $67 $74 Unit production costs: Direct materials $ 12 $16 Direct labor 4 5 Variable factory overhead 3 4 Fixed factory overhead 6 8 Total unit production costs $25 $33 Unit variable selling expenses 21 20 Unit fixed selling expenses 12 7 Total unit costs $58 $60 Operating income per unit $ 9 $ 14 No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 24,000 additional units of moisturizer or 20,000 additional units of perfume could be sold without changing the unit selling price of either product. Required: Hide 1. 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". Differential Analysis Promote Moisturizer (Alt. 1) or Promote Perfume (Alt. 2) June 15, 2014 Promote Moisturizer (Alternative 1) Promote Perfume (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $ $ $ Costs: Direct materials Direct labor Variable factory overhead Variable selling expenses Sales promotion Income (Loss) $ $ $ 2. Determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). 3. The sales manager had tentatively decided to promote perfume, estimating that operating income would be increased by $129,000 ($14 operating income per unit for 20,000 units, less promotion expenses of $151,000). The manager also believed that the selection of moisturizer would increase operating income only by, $65,000 ($9 operating income per unit for 24,000 units, less promotion expenses of $151,000). State briefly your reasons for supporting or opposing the tentative decision. The sales manager's tentative decision should be . The sales manager considered the full unit costs instead of the differential (additional) revenue and differential (additional) costs. An analysis similar to that presented in part (1) would lead to the selection of for the promotional campaign, since this alternative will contribute to operating income than would be contributed by promoting . Check My Work (10 remaining) Icon Key Question 1 of 1 Problem 24-3 (Algorithmic)
Explanation / Answer
1. Differential effect on income:
2. promote alternative 1: Moisturizer
3.
if promotion expenses are need to be incurred for any product, it has no impact on differential income.
and it not changes earlier conclusion.
Sales manager is incorrect
24000 20000 Particulars Moisturier Perfume Perfume over moisturizer Per unit Total Per unit Total Selling price 67 1608000 74 1480000 -128000 Variable expenses: direct materials 12 288000 16 320000 32000 Direct labor 4 96000 5 100000 4000 Variable factory overhead 3 72000 4 80000 8000 Variable selling expenses 21 504000 20 400000 -104000 Total vairable expenses 40 960000 45 900000 -60000 Contribution 27 648000 29 580000 -68000Related Questions
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