Advertising Campaign A firm is developing a TV advertising campaign. Develop-
ment costs (fixed costs) are $150,000, and the firm must pay $15,000 per minute for
television spots. The firm estimates that for each minute of advertising additional sales
of $70,000 result. Of this $70,000, $47,500 is absorbed to cover the variable cost of
producing the items and $15,000 must be used to pay for the minute of advertising. Any
remainder is the contribution to fixed cost and profit.
(a) How many minutes of advertising are necessary to recover the development costs of
the advertising campaign?
(b) If the firm uses 15 one-minute spots, determine total revenue, total costs (produc-
tion and advertising), and total profit (or loss) resulting from the campaign.
Answers
A firm is developing a TV advertising campaign. Development costs (fixed costs) are $ 150,000 and the firm must pay $ 15,000 per minute for TV spots. The firm estimates that for each minute of advertising additional sales of $ 70,000 results. Out of this $ 70,000, $ 47,500 is absorbed to cover the variable cost of producing the items and $ 15,000 must be used to pay for the minutes of advertising. Any remainder is the contribution to fixed cost & profit. a) How many minutes of advertising are necessary to recover the development costs of the advertising campaign? b) If the firm uses 15-one minutes spots of advertising on the TV, determine the total revenue, total costs (production & advertising), and total profit (or loss) resulting from this campaign.
23-1=35/3 0c