Differential Analysis for Sales Promotion Proposal Sole Mates Inc. is planning a one-month campaign for July to promote sales of one of its two shoe products. A total of $113,000 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: Tennis Shoes Walking Shoes Unit selling price $67 $74 Unit production costs: Direct materials $(12) $(16) Direct labor (4) (5) Variable factory overhead (3) (4) Fixed factory overhead (6) (8) Total unit production costs $(25) $(33) Unit variable selling expenses (21) (20) Unit fixed selling expenses (12) (7) Total unit costs $(58) $(60) Operating income per unit $9 $14 No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 18,000 additional units of tennis shoes or 15,000 additional units of walking shoes could be sold without changing the unit selling price of either product. Required: Prepare a differential analysis as of June 19 to determine whether to promote tennis shoes (Alternative 1) or walking shoes (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate costs. If required, use a minus sign to indicate a loss. Differential Analysis Promote Tennis Shoes (Alt. 1) or Promote Walking Shoes (Alt. 2) June 19 Promote Tennis Shoes (Alternative 1) Promote Walking Shoes (Alternative 2) Differential Effects (Alternative 2) Revenues $fill in the blank 611c230a2fa6f90_1 $fill in the blank 611c230a2fa6f90_2 $fill in the blank 611c230a2fa6f90_3 Costs: Direct materials fill in the blank 611c230a2fa6f90_4 fill in the blank 611c230a2fa6f90_5 fill in the blank 611c230a2fa6f90_6 Direct labor fill in the blank 611c230a2fa6f90_7 fill in the blank 611c230a2fa6f90_8 fill in the blank 611c230a2fa6f90_9 Variable factory overhead fill in the blank 611c230a2fa6f90_10 fill in the blank 611c230a2fa6f90_11 fill in the blank 611c230a2fa6f90_12 Variable selling expenses fill in the blank 611c230a2fa6f90_13 fill in the blank 611c230a2fa6f90_14 fill in the blank 611c230a2fa6f90_15 Sales promotion fill in the blank 611c230a2fa6f90_16 fill in the blank 611c230a2fa6f90_17 fill in the blank 611c230a2fa6f90_18 Profit (loss) $fill in the blank 611c230a2fa6f90_19 $fill in the blank 611c230a2fa6f90_20 $fill in the blank 611c230a2fa6f90_21 Determine whether to promote tennis shoes (Alternative 1) or walking shoes (Alternative 2). The sales manager had tentatively decided to promote walking shoes, estimating that operating income would be increased by $97,000 ($14 operating income per unit for 15,000 units, less promotion expenses of $113,000). The manager also believed that the selection of tennis shoes would reduce operating income by, $49,000 ($9 operating income per unit for 18,000 units, less promotion expenses of $113,000). 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 .
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
Sole Mates Inc. is planning a one-month campaign for July to promote sales of one of its two shoe products. A total of $113,000 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:
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Tennis |
Walking |
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Unit selling price |
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$67 |
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$74 |
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Unit production costs: |
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Direct materials |
$(12) |
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$(16) |
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Direct labor |
(4) |
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(5) |
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Variable factory |
(3) |
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(4) |
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Fixed factory overhead |
(6) |
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(8) |
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Total unit production costs |
$(25) |
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$(33) |
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Unit variable selling expenses |
(21) |
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(20) |
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Unit fixed selling expenses |
(12) |
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(7) |
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Total unit costs |
$(58) |
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$(60) |
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Operating income per unit |
$9 |
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$14 |
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No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 18,000 additional units of tennis shoes or 15,000 additional units of walking shoes could be sold without changing the unit selling price of either product.
Required:
- Prepare a differential analysis as of June 19 to determine whether to promote tennis shoes (Alternative 1) or walking shoes (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate costs. If required, use a minus sign to indicate a loss.
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Differential Analysis |
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Promote Tennis Shoes (Alt. 1) or Promote Walking Shoes (Alt. 2) |
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June 19 |
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Promote |
Promote |
Differential |
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Revenues |
$fill in the blank 611c230a2fa6f90_1 |
$fill in the blank 611c230a2fa6f90_2 |
$fill in the blank 611c230a2fa6f90_3 |
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Costs: |
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Direct materials |
fill in the blank 611c230a2fa6f90_4 |
fill in the blank 611c230a2fa6f90_5 |
fill in the blank 611c230a2fa6f90_6 |
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Direct labor |
fill in the blank 611c230a2fa6f90_7 |
fill in the blank 611c230a2fa6f90_8 |
fill in the blank 611c230a2fa6f90_9 |
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Variable factory overhead |
fill in the blank 611c230a2fa6f90_10 |
fill in the blank 611c230a2fa6f90_11 |
fill in the blank 611c230a2fa6f90_12 |
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Variable selling expenses |
fill in the blank 611c230a2fa6f90_13 |
fill in the blank 611c230a2fa6f90_14 |
fill in the blank 611c230a2fa6f90_15 |
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Sales promotion |
fill in the blank 611c230a2fa6f90_16 |
fill in the blank 611c230a2fa6f90_17 |
fill in the blank 611c230a2fa6f90_18 |
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$fill in the blank 611c230a2fa6f90_19 |
$fill in the blank 611c230a2fa6f90_20 |
$fill in the blank 611c230a2fa6f90_21 |
- Determine whether to promote tennis shoes (Alternative 1) or walking shoes (Alternative 2).
- The sales manager had tentatively decided to promote walking shoes, estimating that operating income would be increased by $97,000 ($14 operating income per unit for 15,000 units, less promotion expenses of $113,000). The manager also believed that the selection of tennis shoes would reduce operating income by, $49,000 ($9 operating income per unit for 18,000 units, less promotion expenses of $113,000). 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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