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.