Running Fast Company began operations as an athletic shoe manufacturer. The Company later added athletic socks and activewear as part of their offerings. Competition from overseas manufacturers has forced the company to reduce their prices for their athletic shoes to a point where this product line is no longer profitable.

Activewear

Athletic shoes

Athletic socks

Sales

$ 600,000

$ 350,000

$ 180,000

Variable costs

$ 258,000

$ 262,500

$ 90,000

Contribution margin

$ 342,000

$ 87,500

$ 90,000

Fixed Costs

$ 132,000

$ 105,000

$ 77,400

Operating income

$ 210,000

-$ 17,500

$ 12,600

As a result, Running Fast is considering dropping their athletic shoe line. Management believes that repurposing the space used to manufacture the athletic shoes will increase the activewear sales by 20%. However, as socks and shoes are often sold together, management anticipates a 30% loss in sales of socks. However, by dropping the athletic shoe product line, the production supervisor earning $60,000 would no longer be required. What impact would eliminating the line of athletic shoes have for the Running Fast Company?

Select one:

a. Savings of $80,720

b. Loss of $46,100

c. Savings of $13,900

d. Loss of $13,900

The Teddy Bear Company manufactures a premium stuffed bear for a selling price of $50. The plant capacity is 20,000 per year. Costs to make and sell each bear is: Direct materials $5.50 Direct labour $7.00 Variable manufacturing overhead $10.00 Fixed manufacturing overhead $12.00 Variable selling expenses $3.00 The Teddy Bear Company currently sells 19,000 bears each year. An Australian company has approached The Teddy Bear Company with an order of 3,000 bears for $45 a piece. The Australian company has asked for its own label to be attached to each bear, which will raise costs by .50 each. No selling expenses would be incurred on this order. How much will Teddy Bear Company make or lose if they accept the special order? Select one: a. Loss of $7,500 b. Gain of $17,000 c. Gain of $5,000 d. Gain of $18,500