Reference no: EM132494097

Question - Cost-Volume-Profit

Compute break-even point and margin of safety ratio, and prepare a CVP income statement before and after changes in business environment. 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 ?xed 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. Instructions

(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. (Show column for total amounts only.) Would you make the changes suggested?