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 $ 31,920 in fixed costs to the $ 227,430 currently spent. In addition, Alice is proposing that a 10% price decrease ($ 35 to $ 31.50) will produce a 20% increase in sales volume ( 19,000 to 22,800). Variable costs will remain at $ 14 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.

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 Alices ideas are used		units

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

Current margin of safety ratio		%
Margin of safety ratio Alices changes are introduced		%

Prepare CVP income statements for current operations and after Alices changes are introduced.

Would you make the changes suggested?