Question
Ruth Willis is the advertising manager for Bargain Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of
Ruth 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 $36,000 in fixed costs to the $272,000 currently spent. In addition, Ruth is proposing that a 5% price decrease ($40 to $38) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $24 per pair of shoes. Management is impressed with Ruths ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety.
(a)
Prepare a CVP income statement for current operations and after Ruths changes are introduced.
BARGAIN SHOE STORE CVP Income Statement | ||||
---|---|---|---|---|
Current | New | |||
select an income statement item |
$enter a dollar amount | $enter a dollar amount | |||
select an income statement item |
enter a dollar amount | enter a dollar amount | |||
select a summarizing line for the first part |
enter a total amount for the first part | enter a total amount for the first part | |||
select an income statement item |
enter a dollar amount | enter a dollar amount | |||
select a closing name for this statement |
$enter a total net income or loss amount | $enter a total net income or loss amount |
Would you make the changes suggested? | select an option |
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(b)
Compute the current break-even point in sales units, and compare it to the break-even point in sales units if Ruths ideas are implemented. (Round answers to 0 decimal places, e.g. 5,275.)
Current break-even point | enter a number of pairs of shoes | pairs of shoes | |
---|---|---|---|
New break-even point | enter a number of pairs of shoes | pairs of shoes |
eTextbook and Media
Attempts: 0 of 2 used
(c)
Compute the margin of safety ratio for current operations and after Ruths changes are introduced. (Round answers to 0 decimal places, e.g. 15%.)
Current margin of safety ratio | enter percentages | % | |
---|---|---|---|
New margin of safety ratio | enter percentages | % |
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