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Alma Ortiz is the advertising manager for Cost Less Shoe Store. She is currently work...

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Question

Accounting

Alma Ortiz is the advertising manager for Cost Less Shoe Store. She is currently work
-
ing on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $
18
,
000
in fixed costs to the $
216
,
000
cur
-
rently spent. In addition, Alma is proposing that a
10
%
price decrease
(
from $
30
to $
27)
will produce an increase in sales volume from
20
,
000
to
24
,
000
units. Variable costs will remain at $
12
per pair of shoes. Management is impressed with Alma
s ideas but concerned about the effects that these changes will have on the break
-
even point and the margin of safety
.25
Cost Volume ProfitInstructions
(
a
)
Compute the current break
-
even point in units, and compare it to the break
-
even pointin units if Alma
s ideas are used.
(
b
)
Compute the margin of safety ratio for current operations and after Alma
s changesare introduced.
(
Round to nearest full percent.
)(
c
)
Prepare a CVP income statement for current operations and after Alma
s changes areintroduced.
(
Show column for total amounts only.
)
Would you make the changessuggested?

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