Answer:
Kankakee Cosmetics Company
Differential Analysis for Moisturizer:
Relevant Costs:
Direct Materials $12.00
Direct labor $8.00
Var. Factory O/H $3.00
Var. selling expenses $2.00
Total Variable costs = $25.00
Unit Selling price = $35.00
Contribution = $10.00
Total contribution = $400,000
Advertising, etc. = $150,000
Differential Profit = $250,000
Differential Analysis for Perfume:
Relevant Costs:
Direct Materials $20.000
Direct labor $10.00
Var. Factory O/H $6.00
Var. selling expenses $3.00
Total Variable costs = $39.00
Unit Selling price = $55.00
Contribution = $16.00
Total contribution = $480,000
Advertising, etc. = $150,000
Differential Profit = $330,000
Explanation:
A differential analysis is a managerial accounting technique that considers factors that are unique to each decision and uses those factors to arrive at a decision.
It is also called incremental analysis. In the analysis, differential revenue of each alternative and their differential costs are compared to find the alternative that yields the greater profits.
Fixed costs or sunk costs are not taken into account with this type of analysis. Only the variable costs are considered, because they make the differences.
