Question 3

Mary Willis is the advertising manager for Pina Colada 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 $23,600in fixed costs to the $129,000currently 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.

give an example of a CVP income statement for current operations and after Mary's changes are introduced.