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 $67,000 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 Shoes			Walking Shoes
Unit selling price			$54			$59
Unit production costs:
	Direct materials		$10			$13
	Direct labor		3			4
	Variable factory overhead		2			3
	Fixed factory overhead		6			7
	Total unit production costs		$21			$27
Unit variable selling expenses			18			16
Unit fixed selling expenses			10			7
	Total unit costs		$49			$50
Operating income per unit			$5			$9

No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 19,000 additional units of tennis shoes or 16,000 additional units of walking shoes could be sold from the campaign 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.

Differential Analysis
Promote Tennis Shoes (Alt. 1) or Promote Walking Shoes (Alt. 2)
June 19
	Promote Tennis Shoes (Alternative 1)	Promote Walking Shoes (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$	$	$
Costs:
Direct materials
Direct labor
Variable factory overhead
Variable selling expenses
Sales promotion
Income (Loss)	$	$	$

Answer 1

Differential Analysis
Promote Tennis Shoes (Alt. 1) or Promote Walking Shoes (Alt. 2)
Jun-19
	Promote Tennis Shoes (Alternative 1)	Promote Walking Shoes (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	54 x 19,000 = 1,026,000	59 x 16,000 = 944,000	-82,000
Costs:
Direct materials	10 x 19,000 = 190,000	13 x 16,000 = 208,000	-18,000
Direct labor	3 x 19,000 = 57,000	4 x 16,000 = 64,000	-7,000
Variable factory overhead	2 x 19,000 = 38,000	3 x 16,000 = 48,000	-10,000
Variable selling expenses	18 x 19,000 = 342,000	16 x 16,000 = 256,000	86,000
Sales promotion	67,000	67,000	0
Income (Loss)	$332,000	$301,000	-$31,000

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