Mary 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 $29,000 in fixed costs to the $ 270,000 currently spent. In addition, Mary is proposing that a 5% price decrease ($ 40 to $ 38) will produce a 25% increase in sales volume ( 20,000 to 25,000). Variable costs will remain at $ 25 per pair of shoes. Management is impressed with Marys ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety.

(a)

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Your answer is partially correct.

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

BARGAIN SHOE STORE CVP Income Statement
		Current		New
sales		$		$
Variable Expenses
Contribution Margin
Fixed expenses
Net income/(loss)		$		$