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A company sells two products: Sparta and Volta. Volta is manufactured by a third party supplier,...

A company sells two products: Sparta and Volta. Volta is manufactured by a third party supplier, which charges the company a contractual price for each unit of Volta manufactured. A summary of revenue and costs assumptions for each product is as follows:

Sparta

Volta

Planned sales units prior to promotion

100,000

20,000

Unit selling price

$10

$20

Unit variable cost

$3

$10

Fixed costs

$500,000

$0

The company has the opportunity to spend an additional $10,000 in promotional expenditures on either Sparta or Volta, anticipating a 10% increase in unit sales volume as a result. Both product lines have idle capacity and can support the increase in unit volume. The company should spend the additional promotional expenditure on

  • A.Volta, because it would generate an additional $20,000 in operating profit.
  • B.Sparta, because it would generate an additional $10,000 in operating profit.
  • C.Sparta, because it would generate an additional $60,000 in operating profit.
  • D.Volta, because it would generate an additional $10,000 in operating profit.
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