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 $168,000 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 $61 $67 Unit production costs: Direct materials $11 $14 Direct labor 4 5 Variable factory overhead 3 4 Fixed factory overhead 5 7 Total unit production costs $23 $30 Unit variable selling expenses 19 18 Unit fixed selling expenses 11 6 Total unit costs $53 $54 Operating income per unit $8 $13 No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 30,000 additional units of moisturizer or 25,000 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 81d7bf05e01bfae_1 $fill in the blank 81d7bf05e01bfae_2 $fill in the blank 81d7bf05e01bfae_3 Costs: Direct materials fill in the blank 81d7bf05e01bfae_4 fill in the blank 81d7bf05e01bfae_5 fill in the blank 81d7bf05e01bfae_6 Direct labor fill in the blank 81d7bf05e01bfae_7 fill in the blank 81d7bf05e01bfae_8 fill in the blank 81d7bf05e01bfae_9 Variable factory overhead fill in the blank 81d7bf05e01bfae_10 fill in the blank 81d7bf05e01bfae_11 fill in the blank 81d7bf05e01bfae_12 Variable selling expenses fill in the blank 81d7bf05e01bfae_13 fill in the blank 81d7bf05e01bfae_14 fill in the blank 81d7bf05e01bfae_15 Sales promotion fill in the blank 81d7bf05e01bfae_16 fill in the blank 81d7bf05e01bfae_17 fill in the blank 81d7bf05e01bfae_18 Income (Loss) $fill in the blank 81d7bf05e01bfae_19 $fill in the blank 81d7bf05e01bfae_20 $fill in the blank 81d7bf05e01bfae_21 1b. 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 $157,000 ($13 operating income per unit for 25,000 units, less promotion expenses of $168,000). The manager also believed that the selection of moisturizer would increase operating income by $72,000 ($8 operating income per unit for 30,000 units, less promotion expenses of $168,000). 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.
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 $168,000 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 | $61 | $67 | ||||
| Unit production costs: | ||||||
| Direct materials | $11 | $14 | ||||
| Direct labor | 4 | 5 | ||||
| Variable factory |
3 | 4 | ||||
| Fixed factory overhead | 5 | 7 | ||||
| Total unit production costs | $23 | $30 | ||||
| Unit variable selling expenses | 19 | 18 | ||||
| Unit fixed selling expenses | 11 | 6 | ||||
| Total unit costs | $53 | $54 | ||||
| Operating income per unit | $8 | $13 |
No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 30,000 additional units of moisturizer or 25,000 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 81d7bf05e01bfae_1 | $fill in the blank 81d7bf05e01bfae_2 | $fill in the blank 81d7bf05e01bfae_3 |
| Costs: | |||
| Direct materials | fill in the blank 81d7bf05e01bfae_4 | fill in the blank 81d7bf05e01bfae_5 | fill in the blank 81d7bf05e01bfae_6 |
| Direct labor | fill in the blank 81d7bf05e01bfae_7 | fill in the blank 81d7bf05e01bfae_8 | fill in the blank 81d7bf05e01bfae_9 |
| Variable factory overhead | fill in the blank 81d7bf05e01bfae_10 | fill in the blank 81d7bf05e01bfae_11 | fill in the blank 81d7bf05e01bfae_12 |
| Variable selling expenses | fill in the blank 81d7bf05e01bfae_13 | fill in the blank 81d7bf05e01bfae_14 | fill in the blank 81d7bf05e01bfae_15 |
| Sales promotion | fill in the blank 81d7bf05e01bfae_16 | fill in the blank 81d7bf05e01bfae_17 | fill in the blank 81d7bf05e01bfae_18 |
| Income (Loss) | $fill in the blank 81d7bf05e01bfae_19 | $fill in the blank 81d7bf05e01bfae_20 | $fill in the blank 81d7bf05e01bfae_21 |
1b. 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 $157,000 ($13 operating income per unit for 25,000 units, less promotion expenses of $168,000). The manager also believed that the selection of moisturizer would increase operating income by $72,000 ($8 operating income per unit for 30,000 units, less promotion expenses of $168,000). 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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