Assume that increasing the advertising budget by 20000 will

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Reference no: EM13571872

Dutson company manufactures running shoes and tennis shoes. the projected income statments for the two products are as follows:

Running Shoes Tennis shoes

Sale: $450,000 $750,000

Less: VC (270,000) (300,000)

CM $180,000 $450,000

Less: DFC (200,000) (220,000)

Segment Margin (20,000) $230,000

Less: Allocated FC (50,000) (75,000)

Net income loss (70,000) $155,000

The president of the company is considering dropping the running shoes. However, if the line is dropped, sale of tennis shoes will drop by 10%. There are no significant nonunit-level activity cost.

Required

A. should the company drop or keep the line of running shoes? Provide supporting computations.

B. assume that increasing the advertising budget by $20,000 will increase sales of running shoes by 5% and tennis shoes by 3%. Should advertising be increased?

Reference no: EM13571872

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