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   $58     $64   Unit production costs:           Direct materials $10   $14     Direct labor 4   5     Variable factory overhead 2   4     Fixed factory overhead 6   6     Total unit production costs $22   $29   Unit variable selling expenses 18   17   Unit fixed selling expenses 10   7     Total unit costs $50   $53   Operating income per unit $8   $11   No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 25,000 additional units of moisturizer or 21,000 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 dcaf59fcef8a057_1 $fill in the blank dcaf59fcef8a057_2 $fill in the blank dcaf59fcef8a057_3 Costs:       Direct materials fill in the blank dcaf59fcef8a057_4 fill in the blank dcaf59fcef8a057_5 fill in the blank dcaf59fcef8a057_6 Direct labor fill in the blank dcaf59fcef8a057_7 fill in the blank dcaf59fcef8a057_8 fill in the blank dcaf59fcef8a057_9 Variable factory overhead fill in the blank dcaf59fcef8a057_10 fill in the blank dcaf59fcef8a057_11 fill in the blank dcaf59fcef8a057_12 Variable selling expenses fill in the blank dcaf59fcef8a057_13 fill in the blank dcaf59fcef8a057_14 fill in the blank dcaf59fcef8a057_15 Sales promotion fill in the blank dcaf59fcef8a057_16 fill in the blank dcaf59fcef8a057_17 fill in the blank dcaf59fcef8a057_18 Income (Loss) $fill in the blank dcaf59fcef8a057_19 $fill in the blank dcaf59fcef8a057_20 $fill in the blank dcaf59fcef8a057_21   Feedback   1. Subtract the variable costs, including the promotion costs, from the revenues for each product, based on proposed production. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2. 1b.  Determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2). Promote moisturizer  2.  The sales manager had tentatively decided to promote perfume, estimating that operating income would be increased by $91,000 ($11 operating income per unit for 21,000 units, less promotion expenses of $140,000). The manager also believed that the selection of moisturizer would increase operating income by $60,000 ($8 operating income per unit for 25,000 units, less promotion expenses of $140,000). State briefly your reasons for supporting or opposing the tentative decision. The sales manager's tentative decision should be opposed . The sales manager erroneously  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 moisturizer  for the promotional campaign, because this alternative will contribute more  to operating income than would be contributed by promoting perfume .

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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   $58     $64  
Unit production costs:        
  Direct materials $10   $14  
  Direct labor 4   5  
  Variable factory overhead 2   4  
  Fixed factory overhead 6   6  
  Total unit production costs $22   $29  
Unit variable selling expenses 18   17  
Unit fixed selling expenses 10   7  
  Total unit costs $50   $53  
Operating income per unit $8   $11  

No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 25,000 additional units of moisturizer or 21,000 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 dcaf59fcef8a057_1 $fill in the blank dcaf59fcef8a057_2 $fill in the blank dcaf59fcef8a057_3
Costs:      
Direct materials fill in the blank dcaf59fcef8a057_4 fill in the blank dcaf59fcef8a057_5 fill in the blank dcaf59fcef8a057_6
Direct labor fill in the blank dcaf59fcef8a057_7 fill in the blank dcaf59fcef8a057_8 fill in the blank dcaf59fcef8a057_9
Variable factory overhead fill in the blank dcaf59fcef8a057_10 fill in the blank dcaf59fcef8a057_11 fill in the blank dcaf59fcef8a057_12
Variable selling expenses fill in the blank dcaf59fcef8a057_13 fill in the blank dcaf59fcef8a057_14 fill in the blank dcaf59fcef8a057_15
Sales promotion fill in the blank dcaf59fcef8a057_16 fill in the blank dcaf59fcef8a057_17 fill in the blank dcaf59fcef8a057_18
Income (Loss) $fill in the blank dcaf59fcef8a057_19 $fill in the blank dcaf59fcef8a057_20 $fill in the blank dcaf59fcef8a057_21
 
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1. Subtract the variable costs, including the promotion costs, from the revenues for each product, based on proposed production. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2.

1b.  Determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2).
Promote moisturizer 

2.  The sales manager had tentatively decided to promote perfume, estimating that operating income would be increased by $91,000 ($11 operating income per unit for 21,000 units, less promotion expenses of $140,000). The manager also believed that the selection of moisturizer would increase operating income by $60,000 ($8 operating income per unit for 25,000 units, less promotion expenses of $140,000). State briefly your reasons for supporting or opposing the tentative decision.

The sales manager's tentative decision should be opposed . The sales manager erroneously  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 moisturizer  for the promotional campaign, because this alternative will contribute more  to operating income than would be contributed by promoting perfume .

 
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