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 $23,200 in fixed costs to the $216,000 currently spent. In addition, blossom is proposing that a 5% price decrease ($40 to $38) will produce a 25% increase in sales volume (16,800 to 21,000). Variable costs will remain at $25 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 margin of safety.

A. 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. Pair of shoes