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Compute the margin of safety ratio for current operations

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Reference no: EM132617000

Question - Mary Willis is the advertising manager for Pina Colada 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 $23,600 in fixed costs to the $129,000 currently spent. In addition, Mary is proposing that a 5% price decrease ($20 to $19) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $12 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.

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

Reference no: EM132617000

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