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home / study / business / accounting theory / accounting theory solutions manuals / cost accounting / 7th edition / chapter 12 / problem 28p

Cost Accounting
(7th Edition)
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Chapter 12, Problem 28P Bookmark Show all steps: ON
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(Alternative cost management strategies) In 1993, Procter & Gamble (P&G) management Continue to post
tried to control costs by eliminating many of its brands’ coupons while increasing print 20 questions remaining
advertising. Only a miniscule portion of the hundreds of billions of coupons distributed annually
by P&G were ever redeemed by customers. Eliminating coupons allowed P&G to reduce its
prices on most brands. After testing a market in the northeastern United States, P&G found that it
lost 16 percent of its market share because competitors did not follow P&G in this move. Instead,
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competitors countered P&G’s decrease in price promotions by increasing their price promotions. We'll send you a one-time
Although price promotions had been unprofitable, discontinuing them while competitors did not download link
was even more unprofitable for the company. P&G probably anticipated losing some market
share in exchange for more profitability and equity for its brands but not to the degree that 888-888-8888 Text me
occurred. Advertising was expected to reverse the damage to penetration.

Source: Raju Narisetti, “P&G Ad Chief Plots Demise of the Coupon,” Wall Street Journal (April By providing your phone number, you agree to receive
a one-time automated text message with a link to get
17, 1996), pp. B1, B5A; and Tim Amber, “P&G Learnt the Hard Way from Dropping Its Price the app. Standard messaging rates may apply.
Promotions,” Marketing (June 7, 2001), pp. 22–23.

a. What costs and benefits did P&G likely consider in its discontinuance of coupons?

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b. What was P&G’s apparent strategy in deciding to lower prices? Explain.

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Cost Operations Student
Accounting Management Solutions...
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Alternative cost management strategies:

In the given situation, the Procter & Gamble (P&G) has eliminated many of its brand coupons as
only minuscule portion of hundreds of billions of coupons distributed annually but were redeemed
by customers. But the competitors did not follow this move of P&G.

(a) The cost beard by the P&G on the discontinuance of coupons reduced its cost as hundreds of
billions of coupons cost was removed but for the brand proportioning the cost of print advertising
is imposed by the P&G.

The benefits that P&G has experienced because of discontinuance of coupons was the reduction
in the cost due to which the prices of its brands was decreased and on the basis of it has upper
hand over its competitors in respect of price and in some part it would be proves to be more
better product available at cheapest price to the customer as compare to other company brands
in the market.

Comment

Step 2 of 2

(b) The apparent strategy of the P&G in deciding to lower price is the cost reduction in the form
of eliminating its brand coupons which were only minuscule portion of hundreds of billions was
redeemed by the customers. With this reduction in cost the prices of its brands was reduced and
as result the prices of its products becomes the lowest price brands in the market as compare to
its competitors brand.

Comment

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