Blossom Willis is the advertising manager for Bargain 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 $12,800 in fixed costs to the $137,000 currently spent. In addition, Blossom is proposing that a 5% price decrease ($20 to $19) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $12 per pair of shoes. Management is impressed with Blossoms ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety.

(a)

Your answer has been saved. See score details after the due date.

Compute the current break-even point in units, and compare it to the break-even point in units if Blossoms ideas are used.

Current break-even point			pairs of shoes
New break-even point			pairs of shoes

Attempts: 1 of 1 used

(b)

Your answer has been saved. See score details after the due date.

Compute the margin of safety ratio for current operations and after Blossoms changes are introduced. (Round answers to 0 decimal places, e.g. 15%.)

Current margin of safety ratio			%
New margin of safety ratio			%

Attempts: 1 of 1 used

(c)

Prepare a CVP income statement for current operations and after Blossoms changes are introduced.

BARGAIN SHOE STORE CVP Income Statement
		Current		New
Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses		$		$
Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses
Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses
Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses
Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses		$		$

Would you make the changes suggested?