A Report about Whether Extra Advertising Should
To help decide whether extra advertising should be done in April and May, two cash flow forecasts have been produced. One shows the position of Trafford Ltd if extra advertising is done, and one shows the position if it isn’t done. Also, two profit and loss accounts have been made. One shows the position of the company if no changes are made, and the other shows the position of the company if extra advertising is done. The advantages of doing extra advertising There are many advantages of doing extra advertising in April and May.
They are: If advertising is increased, the sales in April, May and June will also increase. The total sales will increase by 7,500, which is 50% more than before. As shown on the profit and loss accounts, 5,500 more net profit is made over the six months when extra advertising is done. Extra advertising will mean more promotion of the product, therefore even if the sales do not increase, more people will be aware of the product and this may cause sales to improve in the future. Extra advertising will be beneficial to the company in the future as the once advertising is done and the product is promoted, the sales should continue to increase after advertising is stopped.
The disadvantages of doing extra advertising There are also many disadvantages of doing extra advertising in April and May. They are: According to the cash flow forecasts, the company will have 500 less in the bank if extra advertising is done. The more advertising that is done, the more the cash outflows, as the advertising cost 1000 for every month it is done in. The cost of the materials will also increase, which will make the cash outflows increase further. The advertising may not be successful in promoting the product, and may therefore result in having less of an increase in sales.
Recommendation I think that the amount of advertising done should be increased in May and April. This is because I think it will benefit the company over the long run. There are many advantages to increasing the amount of advertising done. The product will become well known, and even if sales do not increase a lot immediately, they will in the future. Sales are expected to increase by 50%, but this figure is likely to increase in the future. Even though the cash outflows will increase, as more materials will be needed, the amount of profit made over the long term should cover these costs comfortably.
Extra advertising will result in the company having less cash, but making more profit. If sales continue to increase as expected, the company will have more cash and will be making more profit as well. The only reason they have less cash is because the money for sales is received a month after the sales. This means that the money made on the 9000 Giggsy’s sold in June has not yet been counted on the cash flow forecast. If the money made for the June sales was added on, than the company would have more cash than shown on the profit and loss account. I feel that it is in the best interests of the company to do extra advertising. After people have been made aware of the product, it will no longer be necessary for the extra advertising to continue. This means that if the company do lose any money, once advertising is stopped, the money lost will be replaced. This document was downloaded from Coursework.