# Ch 5 & 6 CVP HW2.docx - Problem 5-4A Mary Willis is the...

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Problem 5-4AMary Willis is the advertising manager for Bargain Shoe Store. She is currently working on a majorpromotional campaign. Her ideas include the installation of a new lighting system and increaseddisplay space that will add \$24,000 in fixed costs to the \$270,000 currently spent. In addition, Maryis proposing that a 5% price decrease (\$40 to \$38) will produce a 20% increase in sales volume(20,000 to 24,000). Variable costs will remain at \$24 per pair of shoes. Management is impressedwith Mary’s ideas but concerned about the effects that these changes will have on the break-evenpoint and the margin of safety.Compute the current break-even point in units, and compare it to the break-even point in units ifMary’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 areintroduced.(Round answers to 0 decimal places, e.g. 15%.)
Prepare a CVP income statement for current operations and after Mary’s changes are introduced.Exercise 6-14The CVP income statements shown below are available for Armstrong Company and ContadorCompany.ArmstrongCo.ContadorCo.Sales\$500,000\$500,000Variable costs240,00050,000Contributionmargin260,000450,000Fixed costs160,000350,000Net income\$100,000\$100,000(a)Compute the degree of operating leverage for each company.

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Term
Spring
Professor
Johnson