Problem 5-5A a-c (Video)
Mary Willis is the advertising manager for Bargain Shoe Store.She is currently working on a major promotional campaign. Her ideasinclude the installation of a new lighting system and increaseddisplay space that will add $24,000 in fixed costs to the $270,000currently spent. In addition, Mary is proposing that a 5% pricedecrease ($40 to $38) will produce a 20% increase in sales volume(20,000 to 24,000). Variable costs will remain at $24 per pair ofshoes. Management is impressed with Mary’s ideas but concernedabout the effects that these changes will have on the break-evenpoint and the margin of safety.
Compute the current break-even point in units, and compare it tothe break-even point in units if Mary’s 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 andafter Mary’s changes are introduced. (Round answers to 0 decimalplaces, e.g. 15%.)
Current margin of safety ratio %
New margin of safety ratio %
Prepare a CVP income statement for current operations and afterMary’s changes are introduced.
BARGAIN SHOE STORE
CVP Income Statement
Current
New
Administrative ExpensesContribution MarginCost of GoodsSoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSellingExpensesVariable Expenses
$
$
Administrative ExpensesContribution MarginCost of GoodsSoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSellingExpensesVariable Expenses
Administrative ExpensesContribution MarginCost of GoodsSoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSellingExpensesVariable Expenses
Administrative ExpensesContribution MarginCost of GoodsSoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSellingExpensesVariable Expenses
Administrative ExpensesContribution MarginCost of GoodsSoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSellingExpensesVariable Expenses
$
$
Would you make the changes suggested?
