Svetlana Pace 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 $38,230 in fixed costs to the $274,220 currently spent. In addition, Svetlana is proposing that a 5% price decrease will produce a 20% increase in sales volume . Variable costs will remain at $21 per 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 the margin 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
Current New
- Variable Expenses
- Contribution margin
- Fixed Expenses
- Net Income
Would you make the changes suggested? Y/N?