P3-27 (book/static) :: Question Help The Derby Shoe Company produces its famous shoe, the Divine Loafer that sells for $70 per pair. Operating income for 2012 is as follows: 3(Click the icon to view the income statement.) Derby Shoe Company would like to increase its profitability over the next year by at least 25%. To do so, the company is considering the following options: (Click the icon to view the options.) Requirement Evaluate each of the alternatives considered by Derby Shoes. Do any of the options meet or exceed Derby's targeted increase in income of 25%. What should Derby do? (Use parentheses or a minus sign for an operating loss.) Alternative Sales revenue Variable cost Contribution margin Fixed cost Operating income (loss) Sales revenue ($70 per pair) $ 280,000 120,000 Variable cost ($30 per pair) Contribution margin 160,000 80,000 Fixed cost 80,000 Operating income 1. Replace a portion of its variable labor with an automated machining process. This would result in a 15% decrease in variable cost per unit, but a 10% increase in fixed costs. Sales would remain the same. 2. Spend $20,000 on a new advertising campaign, which would increase sales by 40%. 3. Increase both selling price by $10 per unit and variable costs by $8 per unit by using a higher quality leather material in the production of its shoes. The higher priced shoe would cause demand to drop by 15%. 4. Add a second manufacturing facility, which would double Derby's fixed costs, but would increase sales by 60%