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 $16,600in fixed costs to the $136,000currently spent. In addition, Mary is proposing that a 5% price decrease ($20to $19) will produce a20% increase in sales volume (20,000to24,000). Variable costs will remain at $12per pair of shoes. Management is impressed with Mary?s 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 Mary?s 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 Mary?s changes are introduced. (Round answers to 0 decimal places, e.g. 15%.)

Current margin of safety ratio %

New margin of safety ratio %

Prepare a CVP income statement for current operations and after Mary?s changes are introduced.

BARGAIN SHOE STORE

CVP Income Statement

Current