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Prepare a cvp income statement for current operations

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Reference no: EM131912844

Problem

Mary 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 $24,000 in fixed costs to the $270,000 currently spent. In addition, Mary 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 Mary's ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety.

a. Compute the current break-even point in units, and compare it to the break-even point in units if Mary's ideas are used.

b. Compute the margin of safety ratio for current operations and after Mary's changes are introduced.

c. Prepare a CVP income statement for current operations and after Mary's changes are introduced. Would you make the changes suggested?

Reference no: EM131912844

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