Prescott Inc. sells coffee mugs and water bottles. Sales of coffee mugs traditionally run around $275,000$ per year and sales of water bottles are $500,000$ sharply increasing over the past $3-$years as the health benefits of drinking water has increased. Each department is its own profit center. The coffee mugs cost is $$1\mathrm{.}40$ and sell for $$3\mathrm{.}00$ per unit. The water bottles cost is $$2\mathrm{.}10$ and retails for $$5\mathrm{.}00$ per unit. The management is considering putting together a promotion to sell $1-$coffee mug and $1-$water bottle for a combined price of $$7\mathrm{.}00.$

Required: Determine the profit$-$margin of each of the coffee mug and water bottle, using:

the stand$-$alone method $($based on cost$).$

The incremental method based on demand.

Which would you recommend? Why?

Answer rating: 100% (QA)

Answer Lets break down the profit margins for coffee mugs and water bottles using the standalone met... View the full answer