Reference no: EM132826553

Jimmy has recently opened Shoes Store specializing in sportshoes. Jimmy has just completed a course in managerial accounting, and he believes that he can apply certain aspects of the course to his business. He is particualrly interested in adopting the cost-volume-profit (CVP) approach to decision making.

Thus, he has prepared the following analysis:

Sales price per pair of shoes $72
Variable expense per pair of shoes $53
Contribution margin per pair of shoes $19
Fixed expense per year:
Building rental $15,000
Equipment depreciation $ 5,000
Selling $33,000
Administrative $17,000
Total fixed expense $70,000

Problem 1: Jimmy now has one full-time and one part-time sales-person working in the store. It will cost him an additional $11,000 per year to convert the part- time position to a full-time position. Jimmy believes that the change would bring in an additional $14,500 in sales each year. Should he convert the position? Use the incremental approach.