Sole Mates Inc. is planning a one-month campaign for July to promote sales of on

ID: 2430474 • Letter: S

Question

Sole Mates Inc. is planning a one-month campaign for July to promote sales of one of its two shoe products. A total of $100,000 has been budgeted for advertising, contests, redeemable coupons, and other promotional activities. The following data have been assembled for their possible usefulness in deciding which of the products to select for the campaign:

No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 7,000 additional units of tennis shoes or 7,000 additional units of walking shoes could be sold without changing the unit selling price of either product.

Required:

1. Prepare a differential analysis as of June 19 to determine whether to promote tennis shoes (Alternative 1) or walking shoes (Alternative 2). If an amount is zero, enter "0". Use a minus sign to indicate subtracted amounts, negative amounts, or a loss.

Tennis Shoe Walking Shoe Unit selling price $85 $100 Unit production costs: Direct materials $19 $32 Direct labor 8 12 Variable factory overhead 7 5 Fixed factory overhead 16 11 Total unit production costs $50 $60 Unit variable selling expenses 6 10 Unit fixed selling expenses 20 15 Total unit costs $76 $85 Operating income per unit $9 $15

Explanation / Answer

Answers

Differential Analysis

Promote Tennis Shoe (Alt. 1) or Promote Walking Shoe (Alt. 2)

Jun-19

Promote Tennis Shoe (Alternative 1)

Promote Walking Shoe (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

$ 595,000.00

$ 700,000.00

$ 105,000.00

Costs:

Direct materials

$ (133,000.00)

$ (224,000.00)

$ (91,000.00)

Direct labor

$ (56,000.00)

$ (84,000.00)

$ (28,000.00)

Variable factory overhead

$ (49,000.00)

$ (35,000.00)

$ 14,000.00

Variable selling expenses

$ (42,000.00)

$ (70,000.00)

$ (28,000.00)

Sales promotion

$ (100,000.00)

$ -

Income (Loss)

$ 215,000.00

$ 187,000.00

$ (28,000.00)

Differential Analysis

Promote Tennis Shoe (Alt. 1) or Promote Walking Shoe (Alt. 2)

43617

Promote Tennis Shoe (Alternative 1)

Promote Walking Shoe (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

=7000*85

=7000*100