Compute the current break-even point in units

Reference no: EM131763289

Question: Tom 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 $54,600 in fixed costs to the $399,000 currently spent. In addition, Tom is proposing that a 5% price decrease ($60 to $57) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $36 per pair of shoes. Management is impressed with Tom's ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety.

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

Current Break even point:

New Break even point:

2) Compute the margin of safety ratio for current operations and after Tom's changes are introduced.

Current margin of safety ratio:

New margin of safety ratio:

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

Yes or No

Reference no: EM131763289

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