Svetlana Pace is the advertising manager for Bargain Shoe Store. She is currently working on a major promotional campaign. Her ideas includethe installation of a new lighting system and increased display space that will add $38,230 in fixed costs to the $274,220 currently spent. In addition,Svetlana is proposing that a 5% price decrease ($38 to $36) will produce a 20% increase in sales volume (19,710 to 23,652). Variable costs will remain at $21per pair of shoes. Management is impressed with Svetlana’s ideas but concerned about the effects that these changes will have on the break-even point and themargin of safety.
Compute the current break even point in units, and compare it to the break even point in units if svetlanas ideas are used.
Current Break even point ________pairs of shoes
New Break even point _________pairs of shoes
Compute the margin of safety ratio for current operiations and after svetlanas changes are introduce.
Current Percentage _____%
New Percentage _____%
Prepare CVP income statement for current operations and after Svetlanas changes are introduced.
BARGAIN SHOE STORE
CVP Income Statement
Sales __________ __________
Variable Expenses __________ __________
Contribution margin __________ __________
Fixed Expenses __________ __________
Net Income __________ __________
Would you make the changes suggested? Y/N?