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 $$98,000$ 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 $28,000$ additional units of tennis shoes or $23,000$ additional units of walking shoes could be sold without changing the unit selling price of either product.

Required:

Prepare a differential analysis as of June $19$ to determine whether to promote tennis shoes $($Alternative $1)$ or walking shoes $($Alternative $2).$ If an amount is zero, enter $"0".$ Use a minus sign to indicate costs. If required, use a minus sign to indicate a loss.

Differential Analysis

Promote Tennis Shoes $($Alt$.1)$ or Promote Walking Shoes $($Alt$.2)$

June $19$

$\backslash$table$[[$Line Item Description,$\backslash$table$[[$Promote Tennis$],[$Shoes$],[($Alternative $1)]],\backslash$table$[[$Promote Walking$],[$Shoes$],[($Alternative $2)]],\backslash$table$[[$Differential$],[$Effects$],[($Alternative $2)]]],[$Revenues$,,2,],[$Costs:$],[$Direct materials$],[$Direct labor$],[\backslash$table$[[$Variable factory$],[$overhead$]]],[\backslash$table$[[$Variable selling$],[$expenses$]]],[$Sales promotion$],[$Profit $($loss$),,,]]$

Determine whether to promote tennis shoes $($Alternative $1)$ or walking shoes $($Alternative $2).$

The sales manager had tentatively decided to promote walking shoes, estimating that operating income would be increased by $$132,000($ $$10$ operating income per unit for $23,000$ units, less promotion expenses of $$98,000).$ The manager also believed that the selection of tennis shoes would reduce operating income by$,$ $$42,000($ $$5$ operating income per unit for $28,000$ units, less promotion expenses of $$98,000).$ State briefly your reasons for supporting or opposing the tentative decision.

The sales manager's tentative decision should be $.$ The sales manager

$$ considered the full unit costs instead of the differential $($additional$)$ revenue and differential $($additional$)$ costs. An analysis similar to that presented in part $(1)$ would lead to the selection of $$ for the promotional campaign, because this alternative will contribute $$ to operating income than would be contributed by promoting $q,$