Question:
Sales mix) Wild Hound provides two types of services to dog owners: grooming and training. All company personnel can perform either service equally well. To expand sales and market share, the Wild Hound's manager, Jim Dachshund, relies heavily on radio and billboard advertising. For 2001, advertising funding is expected to be very limited. Information on projected operations for 2001 follows:
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Grooming
|
Training
|
|
Revenue per billable hour
|
$30
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$50
|
|
Variable cost of labor
|
$10
|
$20
|
|
Material costs per billable hour
|
$2
|
$4
|
|
Allocated fixed costs per year
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$200,000
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$180,000
|
|
Projected billable hours for 2001
|
20,000
|
16,000
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a. What is Wild Hound's projected pretax profit or (loss) for 2001?
b. If $1 spent on advertising could increase either grooming revenue by $2 or training revenue by $20, on which service should the advertising dollar be spent?
c. If $1 spent on advertising could increase grooming billable time by one hour or training billable time by one hour, on which service should the advertising dollar be spent?