Problem
Orange Company produces two types of shoes, running shoes and golf shoes. The company is running at less than full capacity. Market research indicates that 15,000 additional running shoes and 10,000 additional golf shoes could be sold. The income from operations by unit of product is as follows:
Running Shoes Golf Shoes
Sales Price $110 $90
Variable cost of goods sold 50 40
Manufacturing margin 60 50
Variable selling and admin. expense 20 15
Contribution margin 40 35
Fixed manufacturing costs 12 9
Income from operations 28 26
Instructions:
Prepare an analysis indicating the increase or decrease in total profitability if 15,000 additional running shoes and 10,000 additional golf shoes are produced and sold, assuming that there is sufficient capacity for the additional production.