Problem 194A Mary Willa is the advertising manager for Barga

Problem 19-4A Mary Willa is the advertising manager for Bargain Shoe tore. She is currentdty working on à major promctional c spent In addition. Mary is propo ang that a % price decrease $20 tt, $19) will pro uce a 20% ieuer in saes ethane (20.000 to 2400 these changes will have on the break-even point and the maigih of safety ampaign Hes ideas inclade the inctallation of a sw igting system and increased &splay; space that wil a ha ideoisa s-pre ni add $18,000 in fixed costs to the $129,000 curmently vana se est s direman 12 per par r aos en Ann aee bat tenant-a Cempute the current break even poiet in units, and compare it to the troak-ev Current break-even point New break even point point in units if Mary\'s ideas are used. (Round answers to O decimal placas, . 2,22 pairs of shoes pairs of shoes Compute the margin of safety ratio for current operations and after Mary\'s changes are introduced. (Howd answers to a decimal places, e.g. 15t%.) Current margin of saéety ratio New margin o safety ratio Prepare a cvP income statement for current ccerations and after Mary\'s changes are ntroduced

Solution

Current sale price per pair of shoes $20 Variable cost per pair of shoes $12 Contribution per pair of shoes $8 Current Fixed Costs $129,000 Breal Even Point = Fixed Costs/ Contribution Per unit Current Break Even Point = $129,000/$8 Current Break Even Point = 16,125 pair of Shoes New sale price per pair of shoes $19 Variable cost per pair of shoes $12 Contribution per pair of shoes $7 New Fixed Costs ($129,000+$18,000) $147,000 New Break Even Point = $147,000/$7 New Break Even Point = 21,000 pair of Shoes Margin of safety ratio = (Current sales level - Break even point)/ Current Sales Level Current margin of safety ratio = (20,000 -16,125)/ 20,000 Current margin of safety ratio = 19% New margin of safety ratio = (24,000 -21,000)/ 24,000 New margin of safety ratio = 13% BARGAIN SHOE STORE CVP Income Statement Current New Sales 4,00,000 4,56,000 Variable cost 2,40,000 2,88,000 Contribution 1,60,000 1,68,000 Fixed Costs 1,29,000 1,47,000 Net Income      31,000      21,000 No, Changes would not be suggested.