Karen 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 $16,800 in fixed costs to the $133,000 currently spent. In addition, Karen 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 Karens ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety.

Karen 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 $16,800 in fixed costs to the $133,000 currently spent. In addition, Karen 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 Karen's ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety. (a) Prepare a CVP income statement for current operations and after Karen's changes are introduced. BARGAIN SHOE STORE CVP Income Statement Current New Sales $ $ Variable Expenses Contribution Margin Fixed Expenses Net Income/(Loss) $ $ (b) Compute the current break-even point in sales units, and compare it to the break-even point in sales units if Karen's ideas are implemented. (Round answers to O decimal places, e.g. 5,275.) Current break-even point pairs of shoes New break-even point pairs of shoes (c) Compute the margin of safety ratio for current operations and after Karen's changes are introduced. (Round answers to O decimal places, e.g. 15%.) Current margin of safety ratio % New margin of safety ratio %