Reference no: EM132649508

Shoe Company produces its famous shoe that sells for $65 per pair. Operating income for 2017 is as follows: Sales revenue ($65 per pair) $455,000 Variable cost ($40 per pair) $280.000 Contribution margin $175.000 Fixed cost $87,500 Operating income $87,500 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 20% increase in fixed costs. Sales would remain the same.

2. Spend $15000 on a new advertising campaign, which would increase sales by 20%

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 10%

4. Add a second manufacturing facility that would double company's fixed costs. but would increase sales by 70%.

Question a: Evaluate each of the alternatives (1 -4) for info below: Sales revenue Variable cost Contribution margin Fixed cost Operating income (loss)