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 $19,000 in fixed costs to the $128,000 currently spent. In addition, Mary 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 Marys ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety. Compute the current break-even point in units, and compare it to the break-even point in units if Marys ideas are used. (Round answers to 0 decimal places, e.g. 1,225.)

Current break-even point ____ pairs of shoes New break-even point ____ pairs of shoes Compute the margin of safety ratio for current operations and after Marys changes are introduced. (Round answers to 0 decimal places, e.g. 15%.) Current margin of safety ratio ___% New margin of safety ratio ___% Then prepare a CVP income statement for current operations and after Marys changes are introduced.

BARGAIN SHOE STORE CVP Income Statement Current New

(Options for first column) Would you make the changes suggested? Yes/No?

Administrative Expenses Contribution Margin Cost of Goods Sold Fixed Expenses Gross Profit Net Income/(Loss) Sales Selling Expenses Variable Expenses