Differential Analysis for Sales Promotion Proposal Sole Mates Inc. is planning a one-month campaign for July to promote sales of one of its two shoe products. A total of $146,000 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 Walking Shoes $66 Shoes Unit selling price $73 Unit production costs: Direct materials Direct labor Variable factory Fixed factory overhead Total unit production costs $12 $16 $25 21 12 $58 $8 $33 Unit variable selling expenses 20 Unit fixed selling expenses Total unit costs Operating income per unit No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 26,000 additional units of tennis shoes or 22,000 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 Altemative 2). If an amount is zero, enter .0". Use a minus sign to indicate subtracted amounts, negative amounts, or a loss. $60 $13 Differential Analysis Promote Tennis Shoes (Alt. 1) or Promote Walking Shoes (Alt. 2) June 1 Promote Tennis Shoes (Alternative 1) Promote Walking Shoes (Alternative 2) Differential Effect on Income (Alternative 2) 1. Prepare a differential analysis as of June 19 to determine whether to promote tennis shoes (Alternative 1) or walking shoes (Altemative 2). If an amount is zero, enter "O". 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) une 19 Promote Tennis Shoes (Altnativ) Prmote 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) Check My Work 1. Subtract the variable costs, including the promotion costs, from the revenues for each product, based on the proposed production. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from altemative 1. Learning Objective 1. 2. Determine whether to promote tennis shoes (Alternative 1) or walking shoes (Alternative 2) Promote tennis shoes 3. The sales manager had tentatively decided to promote walking shoes, estimating that operating income would be increased by $140,000 ($13 operating income per unit for 22,000 units, less promotion expenses of $146,000). The manager also believed that the selection of tennis shoes would increase operating income only by, $62,000 ($8 operating income per unit for 26,000 units, less promotion expenses of $146,000). State briefly your reasons for supporting or opposing the tentative decision
