Accounting for Decision Making and Control 7th Edition by Jerold Zimmerman

Exercise 48

Home Auto Parts
Home Auto Parts is a large retail auto parts store selling the full range of auto parts and supplies for do-it-yourself auto repair enthusiasts. The store is arranged with three prime displays in the store: front door, checkout counters, and ends of aisles. These display areas receive the most customer traf­fic and contain special stands that display the merchandise with attractive eye-catching designs. Each display area is set up at the beginning of the week and runs for one week. Three items are scheduled next week for special display areas: Texcan Oil, windshield wiper blades, and floor mats. The ac­companying table provides information for the three promotional areas scheduled to run next week: Based on past experience, management finds that virtually all display-area sales are made by impulse buyers. The display items are extra purchases by consumers attracted by the exhibits.
Before the store manager sets up the display areas, the distributor for Armadillo car wax visits the store. She says her firm wants its car wax in one of the three display areas and is prepared to of­fer the product at a unit cost of $2.50. At a retail price of $2.90, management expects to sell 800 units during the week if the wax is on special display.
Required:
a. Home Auto has not yet purchased any of the promotion items for next week. Should management substitute the Armadillo car wax for one of the three planned promotion displays? If so, which one?
b. A common practice in retailing is for the manufacturer to give free units to a retail store to secure desirable promotion space or shelf space. The Armadillo distributor decides to sweeten the offer by giving Home Auto 50 free units of car wax if it places the Armadillo wax on display. Does this change your answer to part ( a )?