Facts for Assignment
Cost and Managerial Accounting
Sandy's Shampoo Shacks sell 2 types of shampoo; a high-end product called "Sophisticate," and
a low-end product called "Shampoo." Fixed costs other than advertising total $200,000. Selling
prices and variable costs per bottle are:
Regular selling price
Sandy's is trying to decide on the right advertising mix. It has narrowed down its options to
some combination of the following:
* Ads in fancy magazines, promoting "Sophisticate" only
* Coupons for "Shampoo" only
Sandy's advertising budget totals $100,000 per year. The advertising agency has informed
Sandy's that ads can be purchased only in $25,000 increments, and that if Sandy's decides to
issue coupons, the minimum cost will also be $25,000, with additional amounts of coupons
available at $25,000 increments. Therefore, Sandy's has five possible combinations of ads and
coupons. Assume the $100,000 will be fully spent. For coupons, the $25,000 figure refers to the
cost of printing and distributing coupons.
If no ads are run, Sandy's estimates that it will sell 50,000 bottles of"Sophisticate," and ifno
coupons are issued, it estimates it will sell 500,000 bottles of "Shampoo." These would be the
results if the $100,000 were not spent.
The following table details how bottle sales of "Sophisticate" ~e expected to increase for a given
level of ads purchased:
Additional bottles sold
For each $25,000 increment of coupons, the company expects a 160,000 bottle increase in sales
of"Shampoo" as a result of new customers using the coupons. The coupons entitle customers to
20% off the regular selling price of"Shampoo." Assume coupons will not "cannibalize" existing
sales at all.
If Sandy's issues coupons for "Shampoo," one additional complication not included in the
figures above is that doing so will cause a decline in the sale of "Sophisticate," because some of
the snooty buyers of "Sophisticate" will feel that the "Sophisticate" image has been tarnished by
association with a sister product that uses the low-brow tactic of couponing. Sandy's estimates
that each $25,000 increment of coupons will cause a 1000 bottle decline in the sale of
Prepare a spreadsheet that performs the computations specified below. You should proceed in the following manner:
I. Copy the schedule presented below into a spreadsheet. For the time being, leave blank the cells marked "input."
2. Next, input data into the cells marked "input."
3. Put formulas in the cells marked "computed" that compute the requested results.
4. Hand in a printout of your schedule, with numbers in it.
5. Separately, hand in a listing (printout) of each formula organized in the order listed in the schedule (total dollar sales, total
fixed costs, etc.). The cell references should correspond to your printout of the separate schedule (from #4 above).
Ads Purchased Input Input Input Input Input
Coupons Purchased " " " " "
Other Fixed Costs " " " "
Regular Price, Sophisticate "
Regula1 Price, Shampoo .,
Variable cost, Sophisticate " "
Variable cost, Shampoo " " "
Units Sophisticate, no ads " " " " "
Units Shampoo, no coupons " " "
Increased units, Sophisticate, ads " " " " "
Increased units Sho/.oo, coupons " " " " "
Coupon discount O
0 " " " "
. Decreased units Sophisticate, coupons " " " " "
Total Dollar Sales Computed Computed Computed Computed Computed
Total Fixed Costs " " " "
Total Variable Costs
" " "
Operating Income " " " " "
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