Compute the margin of safety ratio for current operations

Reference no: EM13485430

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 $40,500 in fixed costs to the $270,000 currently spent. In addition, Julie 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 Julie'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 Julie's ideas are used. (Round answers to 0 decimal places, e.g. 1,225.)

Current break-even point _____ pairs of shoes

New break-even point _____ pairs of shoes

(b) Compute the margin of safety ratio for current operations and after Julie's changes are introduced. (Round answers to 0 decimal places, e.g. 15%.)

Current margin of safety percentage ___%

New margin of safety percentage ___%

BARGAIN SHOE STORE

CVP Income Statement

Current New

Sales $ ____ $____

Variable Expenses ____ ____

Contribution Margin ____ ____

Fixed Expenses ____ ____

Net Income / (Loss) ____ ____

Reference no: EM13485430

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