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Michelle Willis is the advertising manager for Bargain Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation
Michelle 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 $22,000 in fixed costs to the $286,000 currently spent. In addition, Michelle is proposing that a 5% price decrease ($40 to $38) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $24 per pair of shoes. Management is impressed with Michelle's ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety. Prepare a CVP income statement for current operations and after Michelle's changes are introduced. BARGAIN SHOE STORE CVP Income Statement Current New < < < A Would you make the changes suggested? 1A Compute the current break-even point in sales units, and compare it to the break-even point in sales units if Michelle's ideas are implemented. (Round answers to O decimal places, e.g. 5,275.) Current break-even point New break-even point pairs of shoes pairs of shoes Compute the margin of safety ratio for current operations and after Michelle's changes are introduced. (Round answers to O decimal places, eg. 15%) Current margin of safety ratio New margin of safety ratio % %
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