Timothy Donaghy has developed a unique formula for growing hair
Timothy Donaghy has developed a unique formula for growing hair. His proprietary lotion, used regularly for 45 days, will grow hair in bald spots (with varying degrees of success). Timothy calls his lotion Hair-Again and is selling it via the telephone and Internet. His major form of marketing is through 15-minute infomercials and Internet advertising. Timothy sells each 16-ounce bottle of Hair-Again for $15 and pays a commission of 3 percent of sales to telephone operators who filed the 1-800 phone calls from potential customers. Fixed marketing expenses for each quarter of the coming year include:
Internet banner ads ........ $7,600
Telephone operator time...... 4,000
Travel ............. 3,000
In addition, early next year Timothy intends to film and show infomercials on television. He expects the cost to be $10,000 in quarters 1 and 2, and that the cost will rise to $25,000 in each of quarters 3 and 4. Timothy expects the following unit sales of Hair-Again:
Quarter 1 ...... 5,000
Quarter 2 ...... 15,000
Quarter 3 ...... 40,000
Quarter 4 ...... 35,000
1. Construct a marketing expense budget for Hair-Again for the coming year. Show total amounts by quarter and in total for the year.
2. What if the cost of internet ads rises to $15,000 in Quarters 2 through 4? How would that affect variable marketing expense? Fixed marketing expense? Total marketing expense?
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