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Homework answers / question archive / Timothy Donaghy has developed a unique formula for growing hair
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 | 4,000 |
| 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:
What if the cost of Internet ads rises to $15,000 in Quarters 2 through 4? How would that affect variable marketing expense? Fixed marketing expense? Total marketing expense?
