Assume the current ad spending for company Y is $4,000,000 with a sales of $34,000,000. Company...

70.2K

Verified Solution

Question

General Management

Assume the current ad spending for company Y is $4,000,000 witha sales of $34,000,000. Company X plans to spend additional$1,000,000 on advertising. It is estimated that the elasticity ofad is .25 for the initial sales increase. Furthermore, fromhistorical data, it is learned that the carry-over effect of suchad is about 30% and the product profit contribution ratio is35%.
Does it make sense to spend the additional $1,000,000 ? Why orwhy not? (5 points)
Since 30% carry-over effect is just an estimate and is subjectto error. The management wants to do a sensitivity analysis. Whatshould the minimum carry-over effect be to justify (break-even) the$1,000,000 additional spending? (5 points)

Answer & Explanation Solved by verified expert

4.3 Ratings (643 Votes)

1 Yes it bodes well to put 1000000 more on promoting as it adds to 35 of the item benefit The essential use for publicizing flexibility of interest is ensuring promoting costs are supported by their profits A See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member