Question
Sunland Willis is the advertising manager for Bargain Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of
Sunland 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 $32,400 in fixed costs to the $417,000 currently spent. In addition, Sunland is proposing that a 5% price decrease ($60 to $57) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $36 per pair of shoes. Management is impressed with Sunlands 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 Sunlands ideas are used.
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 Sunlands 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 Sunlands changes are introduced.
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