Differential Analysis Report for Sales Promotion Proposal

Rocket Shoe Company is planning a one-month campaign for August to promote sales of one of its two shoe products. A total of $164,000 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.

	Cross-Trainer Shoe		Running Shoe
Unit selling price	$78		$86
Unit production costs:
Direct materials	$ (14)		$(19)
Direct labor	(5)		(6)
Variable factory overhead	(3)		(5)
Fixed factory overhead	(8)		(9)
Total unit production costs	$(30)		$(39)
Unit variable selling expenses	(25)		(23)
Unit fixed selling expenses	(14)		(9)
Total unit costs	$(69)		$(71)
Operating income per unit	$ 9		$ 15

No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 26,000 additional units of cross-trainer shoes or 22,000 additional units of running shoes could be sold without changing the unit selling price of either product.

Required:

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

Rocket Shoe Company Proposals for Sales Promotion Campaign Differential Analysis Report

	Cross-Trainer Shoes	Running Shoe
Differential revenue from proposals	$fill in the blank bc87bdf62fac00a_1	$fill in the blank bc87bdf62fac00a_2
Differential cost of proposals:
Direct materialsFixed factory overheadOperating income per unitUnit fixed selling expensesUnit selling priceDirect materials	$Direct materials	$Direct materials
Direct laborFixed factory overheadOperating income per unitUnit fixed selling expensesUnit selling priceDirect labor	Direct labor	Direct labor
Fixed factory overheadOperating income per unitUnit fixed selling expensesUnit selling priceVariable factory overheadVariable factory overhead	Variable factory overhead	Variable factory overhead
Fixed factory overheadOperating income per unitUnit fixed selling expensesUnit selling priceVariable selling expensesVariable selling expenses	Variable selling expenses	Variable selling expenses
Fixed factory overheadOperating income per unitSales promotion expensesUnit fixed selling expensesUnit selling priceSales promotion expenses	Sales promotion expenses	Sales promotion expenses
Differential cost of proposals	$fill in the blank bc87bdf62fac00a_18	$fill in the blank bc87bdf62fac00a_19
Net differential income from proposed sales promotion campaignNet differential loss from proposed sales promotion campaignNet differential income from proposed sales promotion campaign	$Net differential income from proposed sales promotion campaign	$Net differential income from proposed sales promotion campaign

2. The sales manager had tentatively decided to promote cross-trainer shoes, estimating that operating income would be increased by $166,000 ($15 operating income per unit for 22,000 units, less promotion expenses of $164,000). The manager also believes that the selection of running shoes will decrease operating income by $70,000 ($9 operating income per unit for 26,000 units, less promotion expenses of $164,000). Should the sales managers tentative decision be accepted or opposed? The sales managers tentative decision should be

(accepted/opposed)

The (cross-trainer shoe/running shoe)

will contribute more to operating income than would be contributed by promoting the

(cross-trainer/ shoes running shoes)

.