Enzo company manufactures different types of shoes: basketball, running, tennis and golf. Sales of the road bikes have fallen. The firm is considering two options: (1) drop the tennis shoe; or (2) replace the tennis shoe with golf. Price and cost data are as follows: Basketball Running Tennis golf Price/unit $90 $65 $40 $60 \Variable cost/unit $45 $40 $35 $43 Total Fixed costs $200000 $210000 $50,000 $150000 Number of units 10000 15000 2500 25000 If the tennis shoe is dropped, 70% of the $50000 fixed cost is avoidable. Required: a) Calculate the increase or decrease on operating income, using relevant amounts only, for option 1. Be sure to indicate if the operating profits increase or decrease. (3 marks) b) Calculate the increase or decrease on operating income, using relevant amounts only, for option 2. Be sure to indicate if the operating profits increase or decrease. (4 marks) c) Which option is best? Identify one longer term strategic issue the firm should consider before making the final decision. (2 marks) Canada D 3 6 * 8 9 O w E R T Y U T S A S D F H J K L 2 7 V B N M. / All Car Cirl