CostVolumeProfitAnalysis.docx - Scenario: Mary Willis is...

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Scenario:Mary Willis is the advertising manager for Bargain Shoe Store. She is currentlyworking on a major promotional campaign. Her ideas include the installation of a new lightingsystem and increased display space that will add $24,000 in fixed costs to the $270,000 in fixedcosts currently spent. In addition, Mary is proposing a 5% price decrease ($40 to $38) willproduce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $24 perpair of shoes. Management is impressed with Mary's ideas but concerned about the effects thesechanges 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 inunits if Mary's ideas are used.
Compute the margin of safety ratio for current operations and after Mary's changes areintroduced (Round to nearest full percent).
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Term
Fall
Professor
JackWilson
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