Cardinal Products hired a new marketing manager early this year. After an informal consumer survey, the marketing manager decided to lower the firm’s selling price by 10% and increase television advertising. The operating results at year end were disappointing. The marketing manager prepared the following analysis for the president. He assumed that direct materials and direct labor were variable costs and that advertising was a fixed cost.

“As you can see,” the marketing manager reported, “the major problem is due to inefficiencies in production. My plan would have worked if production had kept its costs in line.”

A. Prepare a flexible budget report.
B. What is the real source of the disappointing results?Explain.

  • CreatedJanuary 26, 2015
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