The WearRite Shoe Company produces its famous shoe, the Divine Loafer that sells for $75 per pair.

Operating income for 2012 is as follows:

Sales revenue ($75 per pair) $225,000

Variable cost ($20 per pair) 60,000

Contribution margin 165,000

Fixed cost 99,000

Operating income $66,000

The WearRite 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 25% decrease in variable cost per unit, but a 10% increase in fixed costs. Sales would remain the same.

2. Spend $10,000 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 10%.

4. Add a second manufacturing facility, which would double WearRite's fixed costs but would increase sales by 70%.

Required

Evaluate each of the alternatives considered by WearRite Shoes. Do any of the options meet or exceed WearRites targeted increase in income of 25%? What should WearRite do?