Mary Willis is the advertising manager for Bargain Shoe Store. She is currently
ID: 2423015 • Letter: M
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 $29,360 in fixed costs to the $279,940 currently spent. In addition, Mary is proposing that a 5% price decrease ($40 to $38) will produce a 19% increase in sales volume (20,770 to 24,716). Variable costs will remain at $24 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.
(a) 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.)
Current break-even point
pairs of shoes
New break-even point
pairs of shoes
(b) 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 margin of safety ratio
%
New margin of safety ratio
%
(c) Prepare a CVP income statement for current operations and after Mary’s changes are introduced.
BARGAIN SHOE STORE
CVP Income Statement
Current
New
Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses
$
$
Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses
Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses
Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses
Administrative ExpensesContribution MarginCost of Goods SoldFixed ExpensesGross ProfitNet Income/(Loss)SalesSelling ExpensesVariable Expenses
$
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 $29,360 in fixed costs to the $279,940 currently spent. In addition, Mary is proposing that a 5% price decrease ($40 to $38) will produce a 19% increase in sales volume (20,770 to 24,716). Variable costs will remain at $24 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. (a) 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.) Current break-even point Entry field with correct answer 17496.25 pairs of shoes New break-even point Entry field with correct answer 22092.86 pairs of shoes (b) 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 margin of safety ratio Entry field with correct answer 16 % New margin of safety ratio Entry field with incorrect answer now contains modified data % (c) Prepare a CVP income statement for current operations and after Mary’s changes are introduced. BARGAIN SHOE STORE CVP Income Statement Current New Entry field with correct answer $Entry field with correct answer 830800 $Entry field with incorrect answer now contains modified data Entry field with correct answer Entry field with incorrect answer now contains modified data Entry field with incorrect answer now contains modified data Entry field with correct answer Entry field with incorrect answer now contains modified data Entry field with incorrect answer now contains modified data Entry field with correct answer Entry field with correct answer 279,940 Entry field with incorrect answer Entry field with correct answer $Entry field with incorrect answer now contains modified data $Entry field with incorrect answer Would you make the changes suggested? Entry field with correct answer
Current break-even point
pairs of shoes
New break-even point
pairs of shoes
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 $29,360 in fixed costs to the $279,940 currently spent. In addition, Mary is proposing that a 5% price decrease ($40 to $38) will produce a 19% increase in sales volume (20,770 to 24,716). Variable costs will remain at $24 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 (a) 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.) 740625 |pairs of shoes Current break-even point New break-even point 2209286 pairs of shoes (b) 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%.) 16 Current margin of safety ratio New margin of safety ratio (c) Prepare a CVP income statement for current operations and after Mary's changes are introduced BARGAIN SHOE STORE CVP Income Statement New Sales 330300 889776 arlable Expenses 9969600 Contribution Margin 33523433 FIved Expenses 279940 Net incomeLoes)Explanation / Answer
a
Current break-even point
pairs of shoes
Answer
Current Price = $40
less:-Variabl Cost = $24
Margin = $16 *20770 = $332,320
Less: Fixed cost = $279,940
Profit = $52,380
Break Even point = Fixed expenses/Margin per pair
Break Even Point = 279,940/16 = 17,496.25
New Pair of shoes
New Fixed Exp = Fixed expenses + Display cost = 279,940+29,360 = 309,300
Price = $38
Less : V.cost =24
Margin per pair = $14
Margin shoes = 14*24716 = 346,024
Less :- Fixed exp new = 309,300
Profit = $36,724
Break Even = Fixed Exp./ Margin
New Break even = 309,300/14 = 22,092.86
b) Compute the margin of safety ratio for current operations and after Mary’s changes are introduced
Current Safety Ratio = Profit/Margin*100 = 52,380/332,320 = 16%
New Safety Ratio = Profit/Margin*100 = 36,724/346,024 = 11%
(c) Prepare a CVP income statement for current operations and after Mary’s changes are introduced
Current break-even point
pairs of shoes
Answer
Current Price = $40
less:-Variabl Cost = $24
Margin = $16 *20770 = $332,320
Less: Fixed cost = $279,940
Profit = $52,380
Break Even point = Fixed expenses/Margin per pair
Break Even Point = 279,940/16 = 17,496.25
New Pair of shoes
New Fixed Exp = Fixed expenses + Display cost = 279,940+29,360 = 309,300
Price = $38
Less : V.cost =24
Margin per pair = $14
Margin shoes = 14*24716 = 346,024
Less :- Fixed exp new = 309,300
Profit = $36,724
Break Even = Fixed Exp./ Margin
New Break even = 309,300/14 = 22,092.86
b) Compute the margin of safety ratio for current operations and after Mary’s changes are introduced
Current Safety Ratio = Profit/Margin*100 = 52,380/332,320 = 16%
New Safety Ratio = Profit/Margin*100 = 36,724/346,024 = 11%
(c) Prepare a CVP income statement for current operations and after Mary’s changes are introduced
Current New Sales 830,800.00 889,776.00 Variable Exp 498,480.00 593,184.00 Contribution Margin 332,320.00 296,592.00 Fixed Expenses 279,940.00 309,300.00 Net Income/Loss 52,380.00 (12,708.00)Related Questions
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