The Grable Company manufactures and sells three products, Mift, Tift, and Lift. For the coming year, sales
Question:
Variable marketing expense is $ 1 per unit for Mift and Tift and $2 per unit for Lift. Budgeted fixed marketing expenses for the coming year are $3,000, and budgeted fixed administrative expenses are $6,000.
The sales manager has recommended dropping Tift from the product line and using the production capacity currently committed to the production of Tift to produce more Mift. The production manager reports that 4,000 additional units of Mift can be produced with the production capacity now used in manufacturing Tift. To sell 4,000 additional units of Mift, the sales manager believes that the advertising budget will have to be increased by $5,000.
Required:
(1) Should the sales manager's proposal be accepted? Support your answer by computing the change in profitability that would result from this action.
(2) In addition to the factors mentioned by the production manager and the sales manager, what other factors should be considered?
Step by Step Answer: