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

1. Prepare a differential analysis report as of July 25, 2012, presenting the additional revenue and additional costs anticipated from the promotion of cross-trainer shoes and running shoes.

2. The sales manager had tentatively decided to promote cross-trainer shoes, estimating that operating income would be increased by $150,000 ($26 operating income per unit for 25,000 units, less promotion expenses of $500,000).

The manager also believed that the selection of running shoes would 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.

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Cross-Trainer Shoe Running Shoe Unit selling price $90 $112 Unit production costs: $ 30 $24 Direct materials Direct labor 10 Variable factory overhead Fixed factory overhead 6. 16 $ 60 $48 Total unit production costs Unit variable selling expenses Unit fixed selling expenses 12 12 4 16 $ 88 $ 24 $64 Total unit costs $26 Operating income per unit