2) D'Lites Memory Foam Shoes are one of the most popular and most sold shoes of Sketchers. Each shoe pair sells for $60 per pair. Operating income for D'Lites Memory Foam Shoes for 2017 is provided in the table below. Sales revenue ($60 per pair) Variable cost ($25 per pair) Contribution margin Fixed cost Operating income $300,000 125,000 175,000 100,000 S 75,000 To increase profitability Sketchers hired and tasked Mr. Henry George to evaluate few options. Furthermore, Sketchers aim to have an increase of at least 25%. The options Mr. George is considering are listed as follows: 1. Implementing an automated machining process to replace some portion of the current processes requiring variable labor. (This change would decrease variable cost per unit by 20% and increase fixed costs by 15%, whereas the sales would remain the same.) 2. Start a new advertising campaign, which costs $30,000, to promote sales. (This option would result in an increase in sales by 20%.) 3. Make changes in costing by using a higher quality material for the production. (By doing so, both selling price and variable would be increased by $10 per unit and $7 per unit respectively. This increase in price would cause demand to decrease by 10% approximately.) 4. Increase the production by building an additional manufacturing facility. (This would result fixed costs to be doubled and sales to be increased by 60%.) After the evaluation of each of the alternatives being considered, what decision should Mr. George make in order to meet or exceed the targeted increase in income of 25%? Explain and provide your calculations. Do any of the options meet or exceed the targeted increase in income of 25%?
2) D'Lites Memory Foam Shoes are one of the most popular and most sold shoes of Sketchers. Each shoe pair sells for $60 per pair. Operating income for D'Lites Memory Foam Shoes for 2017 is provided in the table below. Sales revenue ($60 per pair) Variable cost ($25 per pair) Contribution margin Fixed cost Operating income $300,000 125,000 175,000 100,000 S 75,000 To increase profitability Sketchers hired and tasked Mr. Henry George to evaluate few options. Furthermore, Sketchers aim to have an increase of at least 25%. The options Mr. George is considering are listed as follows: 1. Implementing an automated machining process to replace some portion of the current processes requiring variable labor. (This change would decrease variable cost per unit by 20% and increase fixed costs by 15%, whereas the sales would remain the same.) 2. Start a new advertising campaign, which costs $30,000, to promote sales. (This option would result in an increase in sales by 20%.) 3. Make changes in costing by using a higher quality material for the production. (By doing so, both selling price and variable would be increased by $10 per unit and $7 per unit respectively. This increase in price would cause demand to decrease by 10% approximately.) 4. Increase the production by building an additional manufacturing facility. (This would result fixed costs to be doubled and sales to be increased by 60%.) After the evaluation of each of the alternatives being considered, what decision should Mr. George make in order to meet or exceed the targeted increase in income of 25%? Explain and provide your calculations. Do any of the options meet or exceed the targeted increase in income of 25%?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
After the evaluation of each of the alternatives being considered, what decision should Mr.
George make in order to meet or exceed the targeted increase in income of 25%? Explain
and provide your calculations. Do any of the options meet or exceed the targeted increase
in income of 25%?
Transcribed Image Text:2) D'Lites Memory Foam Shoes are one of the most popular and most sold shoes of Sketchers.
Each shoe pair sells for $60 per pair. Operating income for D'Lites Memory Foam Shoes for
2017 is provided in the table below.
Sales revenue ($60 per pair)
Variable cost ($25 per pair)
Contribution margin
Fixed cost
Operating income
$300,000
125,000
175,000
100,000
$ 75,000
To increase profitability Sketchers hired and tasked Mr. Henry George to evaluate few options.
Furthermore, Sketchers aim to have an increase of at least 25%. The options Mr. George is
considering are listed as follows:
1. Implementing an automated machining process to replace some portion of the current
processes requiring variable labor. (This change would decrease variable cost per unit by 20%
and increase fixed costs by 15%, whereas the sales would remain the same.)
2. Start a new advertising campaign, which costs $30,000, to promote sales. (This option
would result in an increase in sales by 20%.)
3. Make changes in costing by using a higher quality material for the production. (By doing so,
both selling price and variable would be increased by $10 per unit and $7 per unit respectively.
This increase in price would cause demand to decrease by 10% approximately.)
4. Increase the production by building an additional manufacturing facility. (This would result
fixed costs to be doubled and sales to be increased by 60%.)
After the evaluation of each of the alternatives being considered, what decision should Mr.
George make in order to meet or exceed the targeted increase in income of 25%? Explain
and provide your calculations. Do any of the options meet or exceed the targeted increase
in income of 25%?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education