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The Leather division of a Garnett Co. has two product lines: garments and shoes. The financial results for the product lines are as follows: Product
The Leather division of a Garnett Co. has two product lines: garments and shoes. The financial results for the product lines are as follows: Product lines Garments Shoes Sales 500,000 700,000 Variable expenses 325,000 280,000 Contribution Margin 175,000 420,000 Less Directly Traceable Fixed Expenses Advertising 80,000 112,000 Administration 30,000 35,000 Depreciation 25,000 56,000 Total Traceable Fixed expenses 135,000 203,000 Product line Margins $ 40,000 $ 217,000 Common fixed costs total $125,000. The sales manager wants to run a special promotion campaign on one of the product lines over the next month. A marketing study indicates that such a campaign would increase sales of the garment product line by $200,000 or sales of the shoes product line by $145,000. The promotion campaign would cost $50,000 for either product line. Required: Using incremental analysis, should the company spend the additional $50,000 on advertising and, if so, on which product line? Be sure to indicate by how much profits will increase or decrease for each product. Clearly show how you arrived at your
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