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(Sales mix) Cellular Communications manufactures cell phones and two cell phone accessories: ear buds and a 12-volt (automotive) battery charger. (Each ear bud package contains a set of ear buds.) The ear buds and charger are compatible only with the Matrix cell phone. Sales prices and variable costs for each product are as follows: The historical data of Cellular Communications suggest that, for each of the seven cell phones sold, two ear bud sets and one battery charger are sold. The company is currently exploring two options to increase overall corporate income for the upcoming year. The alternatives that follow would maintain the historical sales mix ratios: 1. Increase corporate advertising by $1,000,000. The company estimates doing so would increase total unit sales to 2,200,000. 2. Decrease the price of cell phones to $70. The company estimates doing so would increase cell phone sales to 3,150,000 units and have no eff ect on the other products. a. Determine the eff ect of each proposal on budgeted profi ts for the coming year. Which alternative is preferred and what is the relative financial benefi t of that alternative? b. How could the firm’s management increase the ratio of ear buds and chargers to cell phone unit sales?
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