Reference no: EM13258702

Cleopatra Cosmetics Company is planning a one-month campaign forMay to promote sales of one of its two cosmetics products. Atotal of $110,000 has been budgeted for advertising, contestsredeemable coupons, and other promotional activities. Thefollowing data have been assembled for their possible usefulness indeciding which of the products to select for the campaign:

 

                                                                       Moisturizer               Perfume

 

Until sellingprice                                           $56                             $75

 

Until productioncosts:                      

 

Directmaterials                                              $10                             $14

 

Directlabor                                                    5                                 8

 

Variable factoryoverhead                             3                                 5

 

Fixed factoryoverhead                                  8                                 8

 

Total unit productioncosts                            $26                             $35

 

Unit variable sellingexpenses                         12                               18

 

Unit fixed selling expenses                            4                                 2

 

Total unitcosts                                               $42                             $55

 

Operating income perunit                             $14                             $20

 

No increase in facilities would be necessary to produce and sellthe increased output. It is anticipated that 10,500 additionalunits of moisturizer or 8,000 additional units of perfume could besold without changing the unit selling price of either product.

 

Instructions:

 

Prepare a differential analysis report as ofApril 15, 2008, presenting the additional revenue and additionalcosts anticipated from the promotion of moisturizer andperfume.
The sales manager had tentatively decided topromote perfume, estimating that operating income would beincreased by $50,000 ($20 to operating income per unit for 8,000units, less promotion expenses of $110,000). The manager alsobelieved that the selection of moisturizer would have less of animpact on operating income, $37,000 ($14 operating income per unitfor 10,500 units, less promotion expenses of $110,000). Statebriefly your reasons for supporting or opposing the tentativedecision.