Answer:
a.Titanium = $2,890,500
Platinum = $5,185,000
b. Platinum is more profitable
Explanation:
The computation of given question is shown below:
For Titanium
Total gross margin = 5,000 × $1,590
= $7,950,000
Salaries and bonus of Customer representative = ($68,000 × 5,000 ÷ 200) + (1% × $7,950,000)
= $1,700,000 + $79,500
= $1,779,500
b.
Promotion cost = $2,850,000 × 80%
= $2,280,000
Excess of gross margin over customer costs = Total gross margin - Salaries and bonus of Customer representative - Promotion cost
= $7,950,000 - $1,779,500 - $2,280,000
= $2,890,500
For Platinum
Total Gross margin = 20,000 × $ 325
= $6,500,000
Salaries and bonus of Customer representative = ($68,000 × 20,000 ÷ 2,000) + (1% × $6,500,000
)
= $680,000 + $65,000
= $745,000
Cost of promotion = $2,850,000 × 20%
= $570,000
Since, 80% is allocated for promotion expenses of titanium so we assume 20% for Platinum
Excess of gross margin over customer costs = Total Gross margin - Salaries and bonus of Customer representative - Cost of promotion
= $6,500,000 - $745,000 - $570,000
= $5,185,000
B. Since, Platinum is higher than Titanium. So, Platinum is more profitable.
