Answer:
Sole Mates Inc.
Differential analysis:
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
Unit variable selling expenses 6 10
Total variable costs $40 $59
Contribution margin per unit $45 $41
Tennis Shoe Walking Shoe Difference
Alternative 1 Alternative 2
Total contribution margin $315,000 $287,000 $28,000
Advertising costs (100,000) (100,000) 0
Total income (loss) ($215,000) $187,000 $28,000
Promote the Tennis Shoes (Alternative 1) because it will bring in more contribution margin than Alternative 2.
Explanation:
a) Data and Calculations:
Budgeted advertising costs = $100,000
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
