The advertising manager for Bertolon Inc, a manufacturer of womens shoes, 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 $34,000 in fixed costs to the $270,000 currently spent by the company. In an effort to increase sales volume the advertising manager is also proposing a 5% price decrease from the current selling price of $40 per pair of shoes. The company is currently selling 20,000 pairs of shoes and expects that these changes would bring a 20% increase in the number of shoes sold. The current variable costs for a pair of shoes are $22 and management expects this figure to remain unchanged.

Management is impressed with the advertising managers initiative and ideas but is concerned about the effects these changes will have on company profits, break-even point and margin of safety.

Requirements

1. Using Microsoft Excel prepare a contribution margin income statement based on the companys current operations. The income statement should be properly formatted and include sales, variable costs and contribution margin in total and also on a per unit basis. Right below the income statement calculate the following based on the current operations:

Break even in units sold

Break even in dollars

Margin of safety in units

Margin of safety in dollars

2. Using Microsoft Excel prepare a contribution margin income statement based the advertising managers recommendations. The income statement should be properly formatted and include sales, variable costs and contribution margin in total and also on a per unit basis. Right below the income statement calculate the following based on the current operations:

Break even in units sold

Break even in dollars

Margin of safety in units

Margin of safety in dollars

ACC 202 Solutions Template FALL 2017-46508380 fx 22 Sheet1 Sheet2 Sheet3 r of Units Sold (Current 20 3 Expected Growth in Unit Sales 4 Fixed Costs(Current) 5270 534 Expected increase in FC 6 Price per Unit pair of Shoes (Current) Expected decrease in Price (per unit) B Variable Costs per Unit (Current & E Bertolon Inc. Contribution Margin Income Statement Based On Current Operations 10 Bertolon Inc. Contribution Margin Income Statement Based On Recommendations 20,000 Number of Units Sold 4 Number of Units Sold 15 16 17 Revenues 18 Variable Costs 19 Contribution Margin 20 Fixed Costs 21 Net Operating Income 24,000 Per Unit riable Costs tribution Margin Fixed Costs Net Operating Income Break-even in units 23 Break-even in units 24 25 Break-even in dollars 26 27 Margin of Safety in units 28 29 Margin of Safety in dollars Break-even in dollars Margin of Safety in units Margin of Safety in dollars