How much television advertising would you use

Reference no: EM132723846

Question - Division C is interested in increasing the sales of Product Z. The present selling price of Product Z is $28.00. A survey is made and sales increases resulting from increases in television advertising are estimated. The results of this survey are provided below (Note that this particular type of advertising can be purchased only in units of $100,000.

	In thousands
Advertising expenditures	$100	$200	$300	$400	$500
Additional volume resulting from additional advertising	10	19	27	34	30

Required -

1. As manager of Division C, how much television advertising would you use if you purchased Product Y at the transfer price calculated in problem 1?

2. How much television advertising would you use if you purchased Product Y for the transfer price calculated in Problem 2?

3. Which is correct from the overall company viewpoint?

4. How much would the company lose in suboptimum profits from using the first transfer price?

Reference no: EM132723846

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