Reference no: EM132541068

Scenario: 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 fixed costs to the $270,000 in fixed costs currently spent. In addition, Mary is proposing 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 these changes will have on the break-even point and the margin of safety.

Questions:

Question 1: Can you detail in excel document the current break-even point in units, and compare it to the break-even point in units if Mary's ideas are used?

Question 2: Can you compute the margin of safety ratio for the current operations and then after Mary's changes are introduced by rounding to nearest full percent?

Question 3: Then can you detail in an excel document a CVP (Cost-Volume-Profit) income statement for current operations and then again after Mary's changes are introduced?