The Moony company, which makes and sells two products, Woody Dolls and Jessie Dolls, has $30,000 to spend on advertising...
The Moony company, which makes and sells two products, Woody Dolls and Jessie Dolls, has $30,000 to spend on advertising. The company has estimated that using the $30,000 to advertise Woody would increase sales of that product by 1,000 units. If the money were spent to advertise Jessie, sales would increase by 1,200 units. Woody has a contribution margin of $40 per unit and Jessie has a contribution margin of $30 per unit. Where should Moony spend it $30,000 of advertising dollars? Why?
Homework Answers
Net profit if advertising expense is spent on Woody Dolls = (1,000 X $40) - $30,000 = $10,000
Net profit if advertising expense is spent on Jessie Dolls = (1,200 X $30) - $30,000 = $6,000
Since the net profit from Woody Dolls is more, advertising expense should be spent on Woody Dolls.
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effect on sales of their products. Data have been collected in
?=20n=20
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measured in thousands of dollars) and product sales (?y,
measured in thousands of units).
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are useful summaries of the data:
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Use the equation method.
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