Nike sells footwear, clothing and sports accessories in thousands of stores across the world. In total, there are more than 900 million items sold every single year. In 2018, Nike had more than $36 billion in sales and employed more than 63,000 people worldwide.

However, due to tough competition, Nike is steadily losing market share in the segment it has long dominated: Basic Running sneakers priced under $100. Nike's share of the North American running business declined 0.2% to 57.9% through May of last year, while Under Armour's market share has risen to 3.5%, from 2.8% in 2018. Adidas' share in running has also surged, going to 4.8% year to date from 3.4% last year.

The weakness in what Nike calls its "core running" categories was discussed in its most recent earnings call in March. "Core footwear, within the running category, isn't performing as well as we would like, particularly in North America," admitted Nike brand President Trevor Edwards. In a private meeting with marketing and sales vice presidents, he suggested that the company should focus on higher priced, performance running shoes and should consider dropping the "basic" running shoe line. Data for the most recent period for each product line and in total follow:

	Air Max	Air Jordon	Nike Basic	Total
Sales units	150,000	335,000	165,000	650,000
Sales Revenue	$68,850,000	$122,275,000	$ 40,920,000	$232,045,000
Factory Variable costs	$35,550,000	$66,866,000	$25,377,000	$127,793,000
Factory Fixed Costs	$8,962,500	$19,513,750	$9,735,000	$38,211,250
Selling expenses	$14,370,000	$29,078,000	$12,507,000	$55,955,000
Operating profit	$9,967,500	$6,817,250	$(6,699,000)	$10,085,750

NOTE: Selling expense are all fixed.

Required

1. Using Excel, develop an analysis that can help Trevor decide about the future of the Basic line. Specifically: (a) Calculate the contribution margin currently generated by each product line (round per-unit amounts to 2 decimal places). (b) What would be the short-term effect on operating profit by dropping the Basic line? (c) Should this line be dropped? Why or why not?
2. Using the spreadsheet you developed in requirement 1, determine whether your answer would change if sales of Basic shoes are expected to fall by 80%.
3. Using the spreadsheet you developed in conjunction with requirement 1, determine the change in short-term operating income that would occur if the Basic line were discontinued and the resources devoted to Basic were used to increase sales by 10% in each of the other two lines.
4. Again using the spreadsheet you developed in conjunction with requirement 1, determine the sales increase (in units, rounded to the nearest whole number) in the Air Max line that would be necessary to maintain overall short-term operating income if the Basic line were discontinued.
5. Given your answers to requirements 1 through 4, consider the overall competitive environment facing Nike Inc. and make recommendations regarding the firms strategic position and direction at this time.