Answer the you are hired as a consultant to help this firm analyze its situation. What do you advise?
Case Analysis Management of a sports shoe company is engaged in a debate over what strategy would lead to the greatest profit. The company's main product is women's athletio shoes, and it has rocentiy introduced a new line of athletic shoes for boys, which are about the same sioes as the women's shoes, With a Fixed (overhead) Cost of $90,000 per weck associated with the production factory, the company is trying to determine whether the production of boys' shoes should be increasod, decreased or eliminated altogether. It eurrently produces 8,000 pain of women's shoes per week, and 2400 pairs of boys' shoes. A pair of the boys' shoes presently sells for $36, with an average production cost of 531 . The accountant has determined that if the overhead costs are spread out over all the shoes being produced, in a ratio proportionate to production levels, then $90000/10400 yields an average fixed cost associated with the boys' shoes equal to 58.65. By this calculation, the boys' shoes are costing the company $39.65 per pair, which is $3.65 greater than the current selling price of $36. 1. At a meeting of top management, the accounting manager sugeests nising the price of the boys' shoes to $40 to improve the profit margin (PAC). 2. The marketing manager cautions that this would lead to a decline in ales. 3. The production manager further points out that average cost would increase if production were decrensed because of the sales decline. The CEO decides that more data is needed, and asks the managers to collect data for 5 different production levels of boys shoes (1600,2400,3200,3600 and 4000), as follows: The marketing mantger is to determine what prices can be charged for these quantities. The production manager is to determine what the costs are for these 5 produetion levels. The CEO decides that more data is noeded, and asks the managers to collect data for 5 differeat production levels of boys shoes (1600,2400,3200,3600 and 4000), as follows: The mariketing mannger is to determine what prices can be charged for these quantities. The production manager is to determine what the costs are for these 5 production levels. At this next meeting, the accountant comments on the fict that the average cost continues to be higher than the price in each of the 5 scenarios, indicating negative profit margins. You are hired as a consultant to belp this firm analyze its situation. What do you advise
