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No results Options v Return to Blackboard Weygandt, Managerial Accounting, 7e Help 1 5ystem Announcements CALCULATos Problem 5-4A Mary Wilis is the advertising manager for Bargain Shoe Store. $57,600 in fixed costs to the $387,600 currently spent. In addition, Mary is proposing that a 5% price decrease (560 to $57) will $36 per pair of shoes. Management is impressed with Mary\'s ideas She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and i a 20% increase in sales volume (20,000 to 24,00 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 compa?e it to the break-even point in units if Mary\'s ideas are used. ( Current break-even point New break even pont pairs of shoes pairs of shoes Compute the margen of safety ratio for current operations and after Mary\'s changes are introduced. (Round answers to 0 decimal places eg. ts%.) Current margin of safety ratio New margin of safety ratio Prepare a?VP income statement for current operations and after Mary\'s changes are introduced. BARGAIN SHOE STORE CVP Income Statement

Solution

Working 1 Calculation of Contribution per unit

Current

New

Sales Price

$                60.00

$                57.00

Variable Cost

$                36.00

$                36.00

Contribution

$                24.00

$                21.00

Breakeven Analysis

Current

New

Fixed cost

$      387,600.00

$      445,200.00

Contribution

$                24.00

$                21.00

Breakeven in Units

16150

21200

Current Breakeven Point

16150 Pairs of Shoes

New Breakeven Point

21200 Pairs of Shoes

Comparison Analysis

Change in Breakeven

5050

Pairs of Shoes

5050 more pair of shoes is required to be sold to achieve new breakeven.

Margin of Safety Calculation

Current

New

Sales

20000

24000

breakeven sales

16150

21200

Margin of Safety

3850

2800

Margin of safety in %

19%

12%

Current Margin of safety ratio

19%

New Margin of safety Ratio

12%

Bargain Shoe Store

CVP Income Statement

Current

New

Sales

$ 1,200,000.00

$ 1,368,000.00

Less: Variable Cost

$      720,000.00

$      864,000.00

Contribution Margin

$      480,000.00

$      504,000.00

Less :Fixed Cost

$      387,600.00

$      445,200.00

           Net Income

$        92,400.00

$        58,800.00

The Change is not Suggested

Note: The change in price and increase in Fixed cost results in decrease on Net Income that is why it is not recommended.

Working 1 Calculation of Contribution per unit
	Current	New
Sales Price	$                60.00	$                57.00
Variable Cost	$                36.00	$                36.00
Contribution	$                24.00	$                21.00