Compute the current break-even point in units

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Question - Sunland 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 $33,640 in fixed costs to the $313,200 currently spent. In addition, Sunland is proposing that a 5% price decrease ($40 to $38) will produce a 25% increase in sales volume (23,200 to 29,000). Variable costs will remain at $25 per pair of shoes. Management is impressed with Sunland's ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety.

Required -

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

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

3. Would you make the changes suggested?

Reference no: EM133034991

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