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: Revenues and costs Moisturizer Perfume Unit selling price $35 $55 Unit production costs: Direct materials 11 20 Direct labor 7 10 Variable factory overhead 3 6 Fixed factory overhead 2 6 Total unit production costs 23 42 Unit variable selling expenses 2 3 Unit fixed selling expenses 2 8 Total unit costs 27 53 Operating income per unit 8 2 Prepare a differential analysis as of November 2 to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2) The sales manager had tentatively decided to promote moisturizer estimating that operating income would be increased by $50,000 ($5 operating income per unit for 40,000 units, less promotion expenses of $150,000). The manager also believed that the selection of perfume would reduce operating income by $90,000 ($2 operating income per unit for 30,000 units, less promotion expenses of $150,000). State briefly your reasons for supporting or opposing the tentative decision.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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:

Revenues and costs	Moisturizer	Perfume
Unit selling price	$35	$55
Unit production costs:
Direct materials	11	20
Direct labor	7	10
Variable factory overhead	3	6
Fixed factory overhead	2	6
Total unit production costs	23	42
Unit variable selling expenses	2	3
Unit fixed selling expenses	2	8
Total unit costs	27	53
Operating income per unit	8	2

Prepare a differential analysis as of November 2 to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2)
The sales manager had tentatively decided to promote moisturizer estimating that operating income would be increased by $50,000 ($5 operating income per unit for 40,000 units, less promotion expenses of $150,000). The manager also believed that the selection of perfume would reduce operating income by $90,000 ($2 operating income per unit for 30,000 units, less promotion expenses of $150,000). State briefly your reasons for supporting or opposing the tentative decision.

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