Chapter 10, Problem 3PA

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:

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.

Instructions

1. 1. Prepare a differential analysis as of November 2 to determine whether to promote moisturizer (Alternative 1) or perfume (Alternative 2).
2. 2. The sales manager had tentatively decided to promote moisturizer estimating that operating income would be increased by $90,000 ($6 operating income per unit times 40,000 units for a total of $240,000, 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 times 30,000 units for a total of $60,000, less promotion expenses of $150,000). State briefly your reasons for supporting or opposing the tentative decision.