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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 oilier promotional activities. The following data have been assembled for their possible usefulness in deciding which of the products to select for the campaign: 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 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. Instructions 1. Prepare a differential analysis as of June 19 to determine whether to promote tennis shoes (Alternative 1) or walking shoes (Alternative 2 ). 2. The sales manager had tentatively decided to promote walking shoes, estimating that operating income would be increased by $5,000 ($15 operating income per unit for 7,000 units less promotion expenses of $100,000). The manager also believed that the selection of tennis shoes would reduce operating income by $37,000 ($9 operating income per unit for 7,000 units less promotion expenses of $100,000). State briefly your reasons for supporting or opposing the tentative decision.

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 25, Problem 25.3BPR
Textbook Problem

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 oilier promotional activities. The following data have been assembled for their possible usefulness in deciding which of the products to select for the campaign:

 

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

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.

Instructions

1.    Prepare a differential analysis as of June 19 to determine whether to promote tennis shoes (Alternative 1) or walking shoes (Alternative 2).

2.    The sales manager had tentatively decided to promote walking shoes, estimating that operating income would be increased by $5,000 ($15 operating income per unit for 7,000 units less promotion expenses of $100,000). The manager also believed that the selection of tennis shoes would reduce operating income by $37,000 ($9 operating income per unit for 7,000 units less promotion expenses of $100,000). State briefly your reasons for supporting or opposing the tentative decision.

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Chapter 25 Solutions

Accounting
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