Problem 18-4A 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 $57,600 in fixed costs to the $396,000 currently spent. In addition, Mary is proposing that a 5% price decrease ($60 to $57) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $36 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.

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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		16500	pairs of shoes
New break-even point		20000	pairs of shoes

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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	26		%
New margin of safety ratio	23		%

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

BARGAIN SHOE STORE CVP Income Statement
		Current		New
		$		$
		$		$

Would you make the changes suggested?

No