Question

A sales department has been giving away expensive items in conjunction with new product sales to stimulate demand. The promotion seems successful, but management believes the cost may be too high and has asked for a review by the internal audit activity. Which of the following procedures would be the least useful to determine the effectiveness of the promotion?

A. Comparing the unit cost of the products sold before and during the promotion period.
B. Performing a review of the sales department's benchmarks used to determine the success of a promotion.
C. Comparing product sales during the promotion period with sales during a similar non-promotion period.
D. Performing an analysis of marginal revenue and marginal cost for the promotion period, compared to the period before the promotion.

Answer 1

Comparing the unit cost of products before and during the promotion is the least useful in assessing promotional effectiveness because it does not consider the full impact of the giveaway or demand stimulation. Instead, analyzing marginal cost and revenue offers more valuable insights.

Step-by-step explanation:

To determine the effectiveness of a sales promotion, it is important to analyze various aspects of its performance. Comparing product sales during the promotion period with a similar non-promotion period and reviewing sales benchmarks used to measure success can provide valuable insights into the promotion's effectiveness. However, simply comparing the unit cost of the products sold before and during the promotion would be the least useful procedure for assessing the promotion's effectiveness because it does not account for the additional costs associated with the giveaway items nor does it directly reflect the success of the promotion in stimulating demand.

Performing an analysis of marginal revenue and marginal cost for products sold during the promotion, compared to the period before, provides a practical approach to understanding the promotion's impact on profits. It compares the cost of producing an additional unit with the revenue gained by selling that additional unit to reveal whether the additional unit is contributing to the total profit.