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 $55 $60 Unit production costs: Direct materials $9 $14 Direct labor 3 5 Variable factory overhead 3 5 Fixed factory overhead 6 4 Total unit production costs $21 $28 Unit variable selling expenses 16 15 Unit fixed selling expenses 12 6 Total unit costs $49 $49 Operating income per unit $6 $11 No increase 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. Instructions 1. Prepare a differential analysis as of August 21 to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). 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 of moisturizer would reduce operating income by $8,000 ($6 operating income per unit for 22,000 units less promotion expenses of $140,000). State briefly your reasons for supporting or opposing the tentative decision.

BuyFind

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285743615
BuyFind

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285743615

Solutions

Chapter
Section
Chapter 25, Problem 25.3APR
Textbook Problem

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 $55 $60
Unit production costs:    
Direct materials $9 $14
Direct labor 3 5
Variable factory overhead 3 5
Fixed factory overhead 6 4
Total unit production costs $21 $28
Unit variable selling expenses 16 15
Unit fixed selling expenses 12 6
Total unit costs $49 $49
Operating income per unit $6 $11

No increase 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.

Instructions

1.    Prepare a differential analysis as of August 21 to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2).

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 of moisturizer would reduce operating income by $8,000 ($6 operating income per unit for 22,000 units less promotion expenses of $140,000). State briefly your reasons for supporting or opposing the tentative decision.

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Chapter 25 Solutions

Accounting (Text Only)
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