Problem 19-4A

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 $24,600 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.)

Compute the margin of safety ratio for current operations and after Marys changes are introduced. (Round answers to 0 decimal places, e.g. 15%.)

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