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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Differential analysis report for sales promotion proposal
Rocket Shoe Company is planning a one-month campaign for August to promote sales of one of its two shoe products. A total of $500,000 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 25.000 additional units of cross-trainer shoes or 18,000 additional units of running shoes could be sold without changing the unit selling price of either product.
Instructions

Prepare- a diferential analysis report presenting the addilional revenue and addilional costs anticipated from the promotion of cross-trainer shoes and running shoes.

To determine

Concept Introduction:

Differential Analysis Report: This report involves analyzing the different benefit and cost that would arise from an alternative solution to a particular problem.

To Prepare:

The differential analysis report showing the additional revenue and additional cost.

Explanation

Company can sell either the cross-trainer shoes or running shoes. If company is selling the cross-trainer shoes then it will incur variable manufacturing expenses of $40($24+$10+$6) and will be selling 25,000 units.

If company is selling the running shoes then it will incur variable manufacturing expenses of $44($30+$8+$6) and will be selling 18,000 units.

Fixed cost is same i.e. the budgeted advertising expenses of $500,000 which can be avoided for taking any decisions. So, in this fixed cost is not considerable.

The differential analysis report of the proposed sale is under:

    ParticularCross-trainer shoes
      ($)
    Running shoes
      ($)
    Differential income
      ($)
    Revenue  2,250,000(25,000×$90)  2,016,000(18,000×$112)  234,000

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