Apple and Google sell a variety of products. Some products are more profitable than others. Teams of employees in each company make advertising, investment, and product mix decisions. Assume a typical ad costs $800,000 and that the average product for both Apple and Google sells for $400 per unit and generates a contribution margin of 20%. Required 1. Estimate how many additional products this ad must sell to justify its cost. 2. If instead Google targets its advertising towards products with contribution margins of 25% or higher, and all other information is unchanged, estimate how many additional products this ad must sell to justify its cost.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Apple and Google sell a variety of products. Some products are more profitable than others.
Teams of employees in each company make advertising, investment, and product mix decisions. Assume
a typical ad costs $800,000 and that the average product for both Apple and Google sells for $400 per unit
and generates a contribution margin of 20%.
Required
1. Estimate how many additional products this ad must sell to justify its cost.
2. If instead Google targets its advertising towards products with contribution margins of 25% or higher,
and all other information is unchanged, estimate how many additional products this ad must sell to
justify its cost.
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