Amount the company can spend on the advertising campaign

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Reference no: EM131221376

Pure water products produces two types of water filters - one that attaches to the faucet and a pitcher filter. The unit that attaches to the faucet is sold for $80 and has variable costs of $20. The pitcher filter sells for $90 and has variable costs of $25. Fixed costs total $775,000. Pure water sells 3 faucet models for every 2 pitcher filters sold.

Assume that last year, the company sold 12,000 faucet model units and 8,000 pitcher filter units. For the coming year, Pure water products is considering investing in an advertising campaign that will increase the sales of the pitcher filter units by 50% and it is the company's goal to increase the comping year's profits by 40% over last year's profits. However, if this advertising campaign is undertaken, sales of the faucet model are expected to fall by 5% because some customers who would have purchased the faucet model will instead purchase the pitcher filter.

Calculate the maximun amount the company can spend on the advertising campaign.

Reference no: EM131221376

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