The

ChukkaFit

Shoe Company produces its famous shoe, the Divine Loafer that sells for

$75

per pair. Operating income for

2013

is as follows:

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ChukkaFit

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 $ 40 comma 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 approximately

15

%.
4.	Add a second manufacturing facility that would double ChukkaFit

's

fixed costs, but would increase sales by

40

%.

Evaluate each of the alternatives considered by

ChukkaFit

Shoes.

	Alternative
	1
Sales revenue	$300,000
Variable cost	96,000
Contribution margin	204,000
Fixed cost	124,200
Operating income (loss)	$79,800

Alternative

2

$420,000

168,000

252,000

148,000

$104,000

Alternative

3

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Requirement

Evaluate each of the alternatives considered by

ChukkaFit

Shoes. Do any of the options meet or exceed

ChukkaFit

's

targeted increase in income of 25%? What should

ChukkaFit

do?

Evaluate each of the alternatives considered by

ChukkaFit

Shoes.

	Alternative
	1
Sales revenue	$300,000
Variable cost	96,000
Contribution margin	204,000
Fixed cost	124,200
Operating income (loss)	$79,800

Alternative

2

$420,000

168,000

252,000

148,000

$104,000

Alternative

3