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The Brown Shoe Company produces its famous shoe, the Power that sells for $60 per pair. Operating income for 2021 is as follows: Sales revenue
The Brown Shoe Company produces its famous shoe, the Power that sells for $60 per pair. Operating income for 2021 is as follows: Sales revenue ($60 per pair) Variable cost ($25 per pair) Contribution margin Fixed cost $300,000 125,000 175,000 100,000 Operating income 75,000 Brown 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: 1. Replace a portion of its variable labor with an automated machining process. This would result in a 20% decrease in variable cost per unit, but a 15% increase in fixed costs. Sales would remain the same. 2. Spend $30,000 on a new advertising campaign, which would increase sales by 20%. 3. Increase both selling price by $10 per unit and variable costs by $7 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 approximately 10%. 4. Add a second manufacturing facility which would double Brown's fixed costs, but would increase sales by 60%. Requirement: Evaluate each of the alternatives considered by Brown Shoes. Do any of the options meet or exceed Brown's targeted increase in income of 25%? What should Brown do
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