Nancy 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 $10,000 in fixed costs to the $144,000 currently spent. In addition, Nancy 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 Nancys 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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Prepare a CVP income statement for current operations and after Nancys changes are introduced.

BARGAIN SHOE STORE CVP Income Statement
		Current		New
select an income statement item SalesFixed ExpensesSelling ExpensesContribution MarginCost of Goods SoldAdministrative ExpensesGross ProfitNet Income/(Loss)Variable Expenses		$enter a dollar amount		$enter a dollar amount
select an income statement item Selling ExpensesFixed ExpensesNet Income/(Loss)Administrative ExpensesSalesCost of Goods SoldVariable ExpensesContribution MarginGross Profit		enter a dollar amount		enter a dollar amount
select a summarizing line for the first part Selling ExpensesNet Income/(Loss)Fixed ExpensesVariable ExpensesSalesContribution MarginCost of Goods SoldGross ProfitAdministrative Expenses		enter a total amount for the first part		enter a total amount for the first part
select an income statement item Cost of Goods SoldSalesContribution MarginAdministrative ExpensesFixed ExpensesNet Income/(Loss)Variable ExpensesSelling ExpensesGross Profit		enter a dollar amount		enter a dollar amount
select a closing name for this statement Contribution MarginAdministrative ExpensesSelling ExpensesFixed ExpensesGross ProfitNet Income/(Loss)Variable ExpensesCost of Goods SoldSales		$enter total net income or loss amount		$enter total net income or loss amount

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(b)

Compute the current break-even point in sales units, and compare it to the break-even point in sales units if Nancys ideas are implemented. (Round answers to 0 decimal places, e.g. 5,275.)

Current break-even point		enter current break-even point per pairs of shoes	pairs of shoes
New break-even point		enter new break-even point per pairs of shoes	pairs of shoes