Mary Willis is the advertising manager for Bargain Shoe Store. She is currently

Question

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 $18,200 in fixed costs to the $133,000 currently spent. In addition, Mary is proposing that a 5% price decrease ($20 to $19) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $12 per pair of shoes. Management is impressed with Mary’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 Mary’s ideas are used. (Round answers to 0 decimal places, e.g. 1,225.)

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

Current break-even point

pairs of shoes 16625 New break-even point 21600

pairs of shoes Problem 19-4A (Part Level Submission) Mary Willis is the advertising manager for Bargain Shoe Store. She is currently working on a major promctional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $19,200 in fixed costs to the $132,000 currently spernt. In addition, Mary is proposing that a 5% price decrease 20 to sig will produce a 20% increase sales volume 20 000 to 24,000 variable costs ill emain at $12 per pai of shoes. Manager ent is impressed with Mary's ideas but concerned about the effects that these changes will have on the break-even pcint and the margin of safety ? (a) Z Your answer has been saved and sent for grading. Soe Gradaboak for scare details Compute the curent break-even point in units, and compare it to the break-even point in units if Mary's ideas are used. (Round answers to Current break-even point New break-even paint Click if you would like to Show Work tor this question: Open Show Work deciaml places, eg. 1,225.) 16625 pairs of shoes 21600 palrs of shoes Attempts: 1 of 1 used Compute the margin of safety ratio for aiment operations and after Mary's changes are introduced. (Round answers to a decimal places, Rg. 15%.) Current margin of safety ratio New margin of safety ratlo Click if you would like to Show Work tor this question: geen Show Work Attempts: of1 used SAVE FOR LATER

Explanation / Answer

Current Situation: Selling price: 20 variable cost: 12 Contribution: 8 Total fixed cost: $ 133000 Current sales volume: 20000 units Break even units: Fixed cost / CM ratio = 133000/8 = 16625 units Margin of safety in unit: 20000-16625 =3375 % MOS to total sales = 3375 / 20000 *100 = 16.875% Revised situation: Sselling price: 19 Variable cost 12 Contribution margin 7 Total fixed cost: 151200 Sales volume: 24000 Break even units: 151200/7 = 21600 units MOS: 24000-21600 = 2400 % of MOS to total sales: 2400/ 24000*100 = 10% Break even units: Current 16625 units Revised 21600 units MOS as % of total sales Current 16.875% Revised 10%

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