Differential Analysis for Sales Promotion Proposal Parisian Cosmetics Company is planning a one-month campaign for September to promote sales of one of its two cosmetics products. A total of $140,000 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 $58 $64 Unit production costs: Direct materials $10 $14 Direct labor 4 5 Variable factory overhead 2 4 Fixed factory overhead 6 6 Total unit production costs $22 $29 Unit variable selling expenses 18 17 Unit fixed selling expenses 10 7 Total unit costs $50 $53 Operating income per unit $8 $11 No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 25,000 additional units of moisturizer or 21,000 additional units of perfume could be sold from the campaign without changing the unit selling price of either product. Required: 1a. Prepare a differential analysis as of August 21. If an amount is zero, enter "0". Differential Analysis Promote Moisturizer (Alt. 1) or Promote Perfume (Alt. 2) August 21 Promote Moisturizer (Alternative 1) Promote Perfume (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank dcaf59fcef8a057_1 $fill in the blank dcaf59fcef8a057_2 $fill in the blank dcaf59fcef8a057_3 Costs: Direct materials fill in the blank dcaf59fcef8a057_4 fill in the blank dcaf59fcef8a057_5 fill in the blank dcaf59fcef8a057_6 Direct labor fill in the blank dcaf59fcef8a057_7 fill in the blank dcaf59fcef8a057_8 fill in the blank dcaf59fcef8a057_9 Variable factory overhead fill in the blank dcaf59fcef8a057_10 fill in the blank dcaf59fcef8a057_11 fill in the blank dcaf59fcef8a057_12 Variable selling expenses fill in the blank dcaf59fcef8a057_13 fill in the blank dcaf59fcef8a057_14 fill in the blank dcaf59fcef8a057_15 Sales promotion fill in the blank dcaf59fcef8a057_16 fill in the blank dcaf59fcef8a057_17 fill in the blank dcaf59fcef8a057_18 Income (Loss) $fill in the blank dcaf59fcef8a057_19 $fill in the blank dcaf59fcef8a057_20 $fill in the blank dcaf59fcef8a057_21 Feedback 1. Subtract the variable costs, including the promotion costs, from the revenues for each product, based on proposed production. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2. 1b. Determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). Promote moisturizer 2. The sales manager had tentatively decided to promote perfume, estimating that operating income would be increased by $91,000 ($11 operating income per unit for 21,000 units, less promotion expenses of $140,000). The manager also believed that the selection of moisturizer would increase operating income by $60,000 ($8 operating income per unit for 25,000 units, less promotion expenses of $140,000). State briefly your reasons for supporting or opposing the tentative decision. The sales manager's tentative decision should be opposed . The sales manager erroneously 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 moisturizer for the promotional campaign, because this alternative will contribute more to operating income than would be contributed by promoting perfume .
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Differential Analysis for Sales Promotion Proposal
Parisian Cosmetics Company is planning a one-month campaign for September to promote sales of one of its two cosmetics products. A total of $140,000 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 | $58 | $64 | ||||
| Unit production costs: | ||||||
| Direct materials | $10 | $14 | ||||
| Direct labor | 4 | 5 | ||||
| Variable factory overhead | 2 | 4 | ||||
| Fixed factory overhead | 6 | 6 | ||||
| Total unit production costs | $22 | $29 | ||||
| Unit variable selling expenses | 18 | 17 | ||||
| Unit fixed selling expenses | 10 | 7 | ||||
| Total unit costs | $50 | $53 | ||||
| Operating income per unit | $8 | $11 |
No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 25,000 additional units of moisturizer or 21,000 additional units of perfume could be sold from the campaign without changing the unit selling price of either product.
Required:
1a. Prepare a differential analysis as of August 21. If an amount is zero, enter "0".
| Differential Analysis | |||
| Promote Moisturizer (Alt. 1) or Promote Perfume (Alt. 2) | |||
| August 21 | |||
| Promote Moisturizer (Alternative 1) |
Promote Perfume (Alternative 2) |
Differential Effect on Income (Alternative 2) |
|
| Revenues | $fill in the blank dcaf59fcef8a057_1 | $fill in the blank dcaf59fcef8a057_2 | $fill in the blank dcaf59fcef8a057_3 |
| Costs: | |||
| Direct materials | fill in the blank dcaf59fcef8a057_4 | fill in the blank dcaf59fcef8a057_5 | fill in the blank dcaf59fcef8a057_6 |
| Direct labor | fill in the blank dcaf59fcef8a057_7 | fill in the blank dcaf59fcef8a057_8 | fill in the blank dcaf59fcef8a057_9 |
| Variable factory overhead | fill in the blank dcaf59fcef8a057_10 | fill in the blank dcaf59fcef8a057_11 | fill in the blank dcaf59fcef8a057_12 |
| Variable selling expenses | fill in the blank dcaf59fcef8a057_13 | fill in the blank dcaf59fcef8a057_14 | fill in the blank dcaf59fcef8a057_15 |
| Sales promotion | fill in the blank dcaf59fcef8a057_16 | fill in the blank dcaf59fcef8a057_17 | fill in the blank dcaf59fcef8a057_18 |
| Income (Loss) | $fill in the blank dcaf59fcef8a057_19 | $fill in the blank dcaf59fcef8a057_20 | $fill in the blank dcaf59fcef8a057_21 |
1. Subtract the variable costs, including the promotion costs, from the revenues for each product, based on proposed production. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2.
1b. Determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2).
Promote moisturizer
2. The sales manager had tentatively decided to promote perfume, estimating that operating income would be increased by $91,000 ($11 operating income per unit for 21,000 units, less promotion expenses of $140,000). The manager also believed that the selection of moisturizer would increase operating income by $60,000 ($8 operating income per unit for 25,000 units, less promotion expenses of $140,000). State briefly your reasons for supporting or opposing the tentative decision.
The sales manager's tentative decision should be opposed . The sales manager erroneously 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 moisturizer for the promotional campaign, because this alternative will contribute more to operating income than would be contributed by promoting perfume .
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