PLEASE EXPLAIN IN DETAIL BUT SIMPLE SOLUTION

Athena Sports Company manufactures running shoes and tennis shoes. The projected

income statements for the two products are as follows:

The common fixed costs have been allocated on the basis of direct labour hours.

The president of Athena is considering dropping the running shoe line. However, if the

line is dropped, sales of tennis shoes are projected to drop by $5\%.$

REQUIRED:

$($a$)$ Should the company drop or keep the running shoe line? Show supporting

calculations.

$($b$)$ Assume that increasing the advertising budget by $$10,000$ will increase sales of

running shoes by $5\%$ and tennis shoes by $3\%.$ Should advertising be increased?

Show supporting calculations.