Question

Marketing Expense Budget

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 field 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	5,000
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

Required:

1. Construct a marketing expense budget for Hair-Again for the coming year. Show total amounts by quarter and in total for the year. If required, round your answers to two decimal places.

2. What if the cost of internet ads rises to $16,000 in Quarters 2 through 4? How would that affect variable marketing expense? Fixed marketing expense? Total marketing expense? If no effect, enter "0" and select "no impact".

Answer 1

1
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Sales units	5000	15000	40000	35000
Sales commission per unit	15	15	15	15
Total Variable Expenses	75000	225000	600000	525000
Variable expenses
Sales comission @3%	2250	6750	18000	15750	42750
Fixed Marketing Expenses
Internet Banner ads	7600	7600	7600	7600	30400
Telephone Operator time	4000	4000	4000	4000	16000
Travel	3000	3000	3000	3000	12000
Informercials cost	10000	1000	1000	1000	70000
Total	26850	31325	57600	55350	171150
2)
	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Sales units	5000	15000	40000	35000
Sales commission per unit	15	15	15	15
Total Variable Expenses	75000	225000	600000	525000
Variable expenses
Sales comission @3%	2250	6750	18000	15750	42750
Fixed Marketing Expenses
Internet Banner ads	7600	15000	15000	15000	52600
Telephone Operator time	4000	4000	4000	4000	16000
Travel	3000	3000	3000	3000	12000
Informercials cost	10000	1000	1000	1000	70000
Total	26850	38750	65000	62750	193350