Differential Analysis for Sales Promotion Proposal Kankakee Cosmetics Company is planning a one-month campaign for December to promote sales of one of its two cosmetics products. A total of $150,000 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 $35 $55 Unit production costs: Direct materials $(12) $(20) Direct labor (8) (10) Variable factory overhead (3) (6) Fixed factory overhead (2) (6) Total unit production costs $(25) $(42) Unit variable selling expenses (2) (3) Unit fixed selling expenses (2) (8) Total unit costs $(29) $(53) Operating income per unit $ 6 $ 2 No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 40,000 additional units of moisturizer or 30,000 additional units of perfume could be sold from the campaign without changing the unit selling price of either product. Required: 1. Prepare a differential analysis as of November 2 to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). If an amount is zero, enter "0".
Differential Analysis for Sales Promotion Proposal Kankakee Cosmetics Company is planning a one-month campaign for December to promote sales of one of its two cosmetics products. A total of $150,000 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 $35 $55 Unit production costs: Direct materials $(12) $(20) Direct labor (8) (10) Variable factory overhead (3) (6) Fixed factory overhead (2) (6) Total unit production costs $(25) $(42) Unit variable selling expenses (2) (3) Unit fixed selling expenses (2) (8) Total unit costs $(29) $(53) Operating income per unit $ 6 $ 2 No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 40,000 additional units of moisturizer or 30,000 additional units of perfume could be sold from the campaign without changing the unit selling price of either product. Required: 1. Prepare a differential analysis as of November 2 to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). If an amount is zero, enter "0".
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Diff Analysis & Product Pricing:
Transcribed Image Text:Differential Analysis for Sales Promotion Proposal
Kankakee Cosmetics Company is planning a one-month campaign for December to promote sales of one of its two cosmetics products. A total of $150,000 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
$35
$55
Unit production costs:
Direct materials
$(12)
$(20)
Direct labor
(8)
(10)
Variable factory overhead
(3)
(6)
Fixed factory overhead
(2)
(6)
Total unit production costs
$(25)
$(42)
Unit variable selling expenses
(2)
(3)
Unit fixed selling expenses
(2)
(8)
Total unit costs
$(29)
$(53)
Operating income per unit
$ 6
$ 2
No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 40,000 additional units of moisturizer or 30,000 additional units of perfume could be sold from the
campaign without changing the unit selling price of either product.
Required:
1. Prepare a differential analysis as of November 2 to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). If an amount is zero, enter "0".
Transcribed Image Text:Required:
1. Prepare a differential analysis as of November 2 to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). If an amount is zero, enter "0".
Differential Analysis
Promote Moisturizer (Alt. 1) or Promote Perfume (Alt. 2)
November 2
Promote
Promote
Differential
Moisturizer
Perfume
Effects
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues
2$
Costs:
Direct materials
Direct labor
Variable factory overhead
Variable selling expenses
Sales promotion
Profit (loss)
Expert Solution
Step 1
1.
Differential Analysis:
Only Incremental Revenues and Costs are considered in Differential Analysis
|
Moisturizer (Alternative 1) |
Perfume (Alternative 2) |
Differential Effect on Income (Alternative 2) |
|
|
Revenues |
$1,400,000 (i.e. 40000x35 |
$1,650,000 (i.e. 30000x55) |
$250,000 |
|
Costs: |
|||
|
Direct labor |
-$320,000 (i.e. 40000x8) |
-$300,000 (i.e. 30000x10) |
$20,000 |
|
Direct material |
-$480,000 (i.e. 40000x12) |
-$600,000 (i.e. 30000x20) |
-$120,000 |
|
Sales promotion |
-$150,000 |
-$150,000 |
0 |
|
Variable factory Overhead |
-$120,000 (i.e. 40000x3) |
-$180,000 (i.e. 30000x6) |
-$60,000 |
|
Variable Selling Overhead |
-$80,000 (i.e. 40000x2) |
-$90,000 (i.e. 30000x3) |
-$10,000 |
|
Income(loss) |
$250,000 |
$330,000 |
$80,000 |
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