Original data: Assume that Feather Friends, Inc., distributes a high-quality woo

Question

Original data: Assume that Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable costs are $7.00 per unit, and fixed costs total $165,000 per year.


Refer to the original data. Assume again that the company sold 39,000 units last year. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.40 per unit. He thinks that this move, combined with some increase in advertising, would increase annual sales by 35%. By how much could advertising be increased with profits remaining unchanged? (Do not prepare an income statement; use the incremental analysis approach.)


What is the amount by which advertising can be increased?

Explanation / Answer

Advertising is a favorable representation of product to make consumers, customers and general public aware of the product. It lets the potential buyers, general public and end users to be aware and familiar with the brands, their goods and services. Before going on to the importance of advertising, we would have an introduction to advertising first. Advertising can be defined as a paid form of non – professional but encouraging, complimenting and positively favorable presentation of goods and services to a group of people by an identified sponsor. It does not include distribution of free samples or offering bonuses, these are sales promotion. In simplest words advertising is introduction, to consumers and general public, of services and goods.

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