Question
Jolena is the marketing manager for Kanga Shoe Store. Jolena is currently working on a promotional campaign that will add $18,000 in fixed costs to
Jolena is the marketing manager for Kanga Shoe Store. Jolena is currently working on a promotional campaign that will add $18,000 in fixed costs to Kanga's current fixed costs of $216,000. Jolena is also proposing that a 10% sales price decrease (from $30 to $27 per pair of shoes) will produce an increase in sales volume from 20,000 to 24,000 units. Variable costs will remain at $12 per pair of shoes. Compute and prepare a cvp analysis: Current After Changes Increase/Decrease Break-even point in units Margin of Safety Ratio Prepare the CVP Income Statement (Totals) CVP Income Statement: Current After Changes Increase/Decrease to Profit/Loss Sales revenes Less: Variable costs Contribution margin Less: Fixed costs Profit/Loss 2. a. Based on the results for your cvp analysis: 1- Explain the results for the break-even point, margin of safety ratio, and cvp income statement 2- Would you make the changes recommended by Jolena? b. Explain and compare the per unit behavior and the total cost behavior for variable costs. c. Explain relevant range: 1- Explain what the relevant range is. 2- Explain and provide an example when the straight-line relationship does not exist for variable costs.
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