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Question(s) / Instruction(s):

Alice Shoemaker is the advertising manager for Value 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 $34,000 in fixed costs to the $270,000 currently spent. In addition, Alice is 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 $22 per pair of shoes. Management is impressed with Alice's ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety

Required:

1              Compute the current break-even point in units, and compare it to the break-even point in units if Alice's ideas are used

2              Compute the margin of safety ratio for current operations and after Alice's changes are introduced

3              Prepare a CVP income statement for current operations and after Alice's changes are introduced

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