Question
Q8: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
Q8: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 $23,600 in fixed costs to the $129,000 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.
a.)Compute the current break-even point in units, and compare it to the break-even point in units if Marys ideas are used.
b.)Compute the margin of safety ratio for current operations and after Mary's changes are introduced.
c.)Prepare a CVP income statement for current operations and after Mary's changes are introduced.
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