arisian Cosmetics Company is planning a one-month campaign for September to promote sales of one of its two cosmetics products. A total of $185,000 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 $80 $88 Unit production costs: Direct materials $14 $19 Direct labor 5 6 Variable factory overhead 3 5 Fixed factory overhead 8 10 Total unit production costs $30 $40 Unit variable selling expenses 25 24 Unit fixed selling expenses 14 9 Total unit costs $69 $73 Operating income per unit $11 $15 No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 24,000 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. Required: Question Content Area 1a. Prepare a differential analysis as of August 21. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisPromote Moisturizer (Alt. 1) or Promote Perfume (Alt. 2)August 21 Promote Moisturizer (Alternative 1) Promote Perfume (Alternative 2) Differential Effects (Alternative 2) Revenues $fill in the blank d0d17704d01004f_1 $fill in the blank d0d17704d01004f_2 $fill in the blank d0d17704d01004f_3 Costs: Direct materials fill in the blank d0d17704d01004f_4 fill in the blank d0d17704d01004f_5 fill in the blank d0d17704d01004f_6 Direct labor fill in the blank d0d17704d01004f_7 fill in the blank d0d17704d01004f_8 fill in the blank d0d17704d01004f_9 Variable factory overhead fill in the blank d0d17704d01004f_10 fill in the blank d0d17704d01004f_11 fill in the blank d0d17704d01004f_12 Variable selling expenses fill in the blank d0d17704d01004f_13 fill in the blank d0d17704d01004f_14 fill in the blank d0d17704d01004f_15 Sales promotion fill in the blank d0d17704d01004f_16 fill in the blank d0d17704d01004f_17 fill in the blank d0d17704d01004f_18 Profit (loss) $fill in the blank d0d17704d01004f_19 $fill in the blank d0d17704d01004f_20 $fill in the blank d0d17704d01004f_21 Question Content Area 1b. Determine whether to promote moisturizer (Alternative 1) or promote perfume (Alternative 2). 2. The sales manager had tentatively decided to promote perfume, estimating that operating income would be increased by $115,000 ($15 operating income per unit for 20,000 units, less promotion expenses of $185,000). The manager also believed that the selection of moisturizer would reduce operating income by $79,000 ($11 operating income per unit for 24,000 units, less promotion expenses of $185,000). State briefly your reasons for supporting or opposing the tentative decision. The sales manager's tentative decision should be . The sales manager 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 for the promotional campaign, because this alternative will contribute to operating income than would be contributed by promoting .
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.
Parisian Cosmetics Company is planning a one-month campaign for September to promote sales of one of its two cosmetics products. A total of $185,000 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 | $80 | $88 | ||||
| Unit production costs: | ||||||
| Direct materials | $14 | $19 | ||||
| Direct labor | 5 | 6 | ||||
| Variable factory |
3 | 5 | ||||
| Fixed factory overhead | 8 | 10 | ||||
| Total unit production costs | $30 | $40 | ||||
| Unit variable selling expenses | 25 | 24 | ||||
| Unit fixed selling expenses | 14 | 9 | ||||
| Total unit costs | $69 | $73 | ||||
| Operating income per unit | $11 | $15 |
No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 24,000 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.
Required:
Question Content Area
1a. Prepare a differential analysis as of August 21. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
| Promote Moisturizer (Alternative 1) |
Promote Perfume (Alternative 2) |
Differential Effects (Alternative 2) |
|
| Revenues | $fill in the blank d0d17704d01004f_1 | $fill in the blank d0d17704d01004f_2 | $fill in the blank d0d17704d01004f_3 |
| Costs: | |||
| Direct materials | fill in the blank d0d17704d01004f_4 | fill in the blank d0d17704d01004f_5 | fill in the blank d0d17704d01004f_6 |
| Direct labor | fill in the blank d0d17704d01004f_7 | fill in the blank d0d17704d01004f_8 | fill in the blank d0d17704d01004f_9 |
| Variable factory overhead | fill in the blank d0d17704d01004f_10 | fill in the blank d0d17704d01004f_11 | fill in the blank d0d17704d01004f_12 |
| Variable selling expenses | fill in the blank d0d17704d01004f_13 | fill in the blank d0d17704d01004f_14 | fill in the blank d0d17704d01004f_15 |
| Sales promotion | fill in the blank d0d17704d01004f_16 | fill in the blank d0d17704d01004f_17 | fill in the blank d0d17704d01004f_18 |
| $fill in the blank d0d17704d01004f_19 | $fill in the blank d0d17704d01004f_20 | $fill in the blank d0d17704d01004f_21 |
Question Content Area
1b. Determine whether to promote moisturizer (Alternative 1) or promote perfume (Alternative 2).
2. The sales manager had tentatively decided to promote perfume, estimating that operating income would be increased by $115,000 ($15 operating income per unit for 20,000 units, less promotion expenses of $185,000). The manager also believed that the selection of moisturizer would reduce operating income by $79,000 ($11 operating income per unit for 24,000 units, less promotion expenses of $185,000). State briefly your reasons for supporting or opposing the tentative decision.
The sales manager's tentative decision should be
. The sales manager
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
for the promotional campaign, because this alternative will contribute
to operating income than would be contributed by promoting
.
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