Differential Analysis for Sales Promotion Proposal Sole Mates Inc. is planning a

Question

Differential Analysis for Sales Promotion Proposal 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: Tennis Walking Shoe Shoe Unit selling price $85 $100 Unit production costs Direct materials Direct labor Variable factory overhead Fixed factory overhead Total unit production costs $19 $32 12 16 $60 10 15 $85 $15 $50 Unit variable selling expenses Unit fixed selling expenses 20 $76 $9 Total unit costs Operating income per unit 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 zero "O. Use a minus sign to indicate subtracted amounts, negative amounts, or a loss. Differential Analysis Promote Tennis Shoe (Alt. 1) or Promote Walking Shoe (Alt. 2) June 19 Promote Tennis Shoe (Alternative 1) Promote Walking Shoe (Alternative 2) Differential Effect on Income (Alternative 2) Costs Direct materials Direct labor Variable factory overhead Variable selling expenses Sales promotion Income (Loss)

Explanation / Answer

Ans. 1.                                    Differential Analysis

                                         For Promote Tennis Shoe        or promote walking shoe        Differential amt

Sales (unitsXprice)                     595000                                     700000                           105000

Less: Material                            133000                                     224000                              -

         Labour                              56000                                       84000                                -

        Variable factory cost          49000                                       35000                                -

        Variable selling cost          42000                                        70000                                -

Profit before Advt cost             $315000                 $287000                        $28000

Less: Advt cost    $100000 $100000                             -

Net profit    $215000    $187000                           $28000

1. Company should Promote Tennis show because it will give more profit as compair with walking show, for differential analysis we can't consider Fixed Allocated Cost.

2. The sales Manager Decision shold be Opposing , The sales is consider full value of unit cost Intead of Differential cost / Variable cost. As calculation of part 1 promotion of tennis show or Alternative 1 will give better return as compair of alternative 2

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