Alice Oritz is the advertising manager for Value Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $8,550 in fixed costs to the $173,850 currently spent. In addition, Alice is proposing that a 10% price decrease ($25 to $22.50) will produce a 20% increase in sales volume (19,000 to 22,800). Variable costs will remain at $10 per pair of shoes. Management are impressed with Alices ideas but are concerned about the effects that these changes will have on the break-even point and the margin of safety.

A)Calculate the current break-even point in units, and compare it with the break-even point in units if Alices ideas are used.

Current break-even point( )units

Break-even point if Alice's ideas are used( )units

B)Calculate the margin of safety ratio for current operations and after Alices changes are introduced

Current margin of safety ratio( )%

Margin of safety ratio Alice's changes are introduced ( )%

C)Prepare CVP income statements for current operations and after Alice's changes are introduced.

D)Would you make the changes suggested?

The changes ( )be made.