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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 lo 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

The sales manager has tentatively decided to promote cross-trainer shoes, estimating that operating income will increase by $150,000 ($26 operating income per units for 25,000 units, less promotion expenses of $500,000). The manager also believes that the selection of running shoes will decrease operating income by $68,000 ($24 operating income per unit for 18,000 units, less promotion expenses of $500,000). State briefly your reasons for supporting or opposing the tentative decision.

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.

The reasons in favor or against the decision of the sales manager.

Explanation

The decision of the sales manager is not correct as the sales manager has compared the contribution after considering the fived factory and selling cost which are not considerable and relevant for making the decisions. As these expenses will continue to occur even if there are no activities in the company which makes them irrelevant. The income per unit to be considered for making the selection should be taken after eliminating the fixed cost expense by add...

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