Reference no: EM132551051
Differential analysis for sales promotion proposal
A Cosmetics company is planning a one-month campaign for September to promote sales of one of its two cosmetic products. A total of $140,000 has been budgeted for advertising, contests, redeemable coupons, and promotional activities. The following date have been assembled for their possible usefulness in deciding which of the products to select for the campaign:
Moisturizer Perfume
Unit selling price $55.00 $60.00
Unit production costs:
Direct material $9.00 $14.00
Direct labor 3.00 5.00
Variable factory overhead 3.00 5.00
Fixed factory overhead 6.00 4.00
Total unit production costs $21.00 $28.00
Unit variable selling expenses 16.00 15.00
Unit fixed selling expenses 12.00 6.00
Total unit costs $49.00 $49.00
Operating income per unit $6.00 $11.00
No increases in facilities would be necessary to produce and sell the increased output. It is anticipated that 22,000 additional units of moisturizer or 20,000 additional units of perfume could be sold from the campaign without changing the unit selling price of either product.
Question 1: Differential analysis as of August to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2)
Question 2: The sales manager had tentatively decided to promote perfume, estimating that operating income would be increased by $80,000 ($11 operating income per unit for 20,000 units less promotion expenses of $140,000). The manager also believed that the selection od moisturizer would reduce operating income by $8,000 ($6 operating income per unit for 22,000 units less promotion expenses of $140,000). Sate briefly the reasons for supporting or opposing the tentative decision.