Mercury Athletic Shoe Company is planning a one-month campaign for April to promote sales of one of its two shoe products. A total of $125,000 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 5,000 additional units of tennis shoes or 7,500 additional units of walking shoes could be sold without changing the unit selling price of either product.

Instructions
1. Prepare a differential analysis report as of March 13, 2008, presenting the additional revenue and additional costs anticipated from the promotion of tennis shoes and walking shoes.
2. The sales manager had tentatively decided to promote tennis shoes, estimating that operating income would be increased by $90,000 ($43 operating income per unit for 5,000 units, less promotion expenses of $125,000). The manager also believed that the selection of walking shoes would increase operating income by $55,000 ($24 operating income per unit for 7,500 units, less promotion expenses of $125,000). State briefly your reasons for supporting or opposing the tentativedecision.

Transcribed Image Text:

Tennis Walking Shoe $98 Unit selling price $112 $17 10 Direct materials Direct labor Variable factory overhead Fixed factory overhead s 22 1 12 Total unit production costs Unit variable selling expenses Unit fixed selling expenses S 48 12 69 S 43 16 S74 $24 Total unit costs Operating income per unit