Pure Water Products produces two types of water filters. One attaches to the faucet and cleans all water that passes through the faucet. The other is a pitcher-filter that only purifies water meant for drinking. Revenue and cost information for each product appears below:
? the unit that attaches to the faucet is sold for $80 and has variable costs of $20
? the pitcher-filter sells for $90 and has variable costs of $25
? fixed costs total $775,000
? Pure Water sells 3 faucet models for every 2 pitcher-filters sold
Assume that last year, the company sold 12,000 faucet model units and 8,000 pitcher-filter units. For the coming year, Pure Water Products is considering investing in an advertising campaign that will increase the sales of the pitcher-filter units by 50% and it is the company’s goal to increase the coming year’s profits by 40% over last year’s profits. However, if this advertising campaign is undertaken, sales of the faucet model are expected to fall by 5% because some customers who would have purchased the faucet model will instead purchase the pitcher-filter. Calculate the maximum amount the company can spend on the advertising campaign.