This is the expected increase in profit from the increased sales. However, the expected incremental profit from the advertising campaign needs to include the cost of the campaign in the calculations. This is the expected incremental increase in sales in units minus the cost of the advertising campaign. This answer omits the fact that each additional unit sold increases total profit by $2.00 ($5.20 ? $3.20). The expected incremental profit is the expected total profit increase from the increased sales minus the cost of the advertising program. The expected profit increase is the weighted average of the possible profit increases, using the probabilities as the weights. To calculate the expected incremental profit from the increased sales, we need to calculate the increased total profit at each possible level of sales increase by multiplying the sales increase in units by the profit per unit of $2.00 ($5.20 ? $3.20). Then we will multiply each of those total profit increases by its probability. The sum of the products will be the expected incremental profit from the increased sales. (15,000 × $2 × .10) + (30,000 × $2 × .35) + (45,000 × $2 × .10) + (60,000 × $2 × .25) + (75,000 × $2 × .20) = $93,000. The expected incremental profit is $93,000 ? $40,000 advertising cost = $53,000. Note: An alternate method of calculating the expected incremental profit from the increased sales is to multiply each of the sales increase amounts by its probability and sum the results, then multiply the resulting sum by $2 additional profit per unit, as follows: (15,000 × .10) + (30,000 × .35) + (45,000 × .10) + (60,000 × .25) + (75,000 × .20) = 46,500. 46,500 × $2 = $93,000. $93,000 ? $40,000 = $53,000. This amount (without the dollar sign) is the expected incremental increase in sales in units. This answer omits the fact that each additional unit sold increases total profit by $2.00 ($5.20 ? $3.20), and it also omits the cost of the advertising campaign.
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