Question

Problem 11-4 Mary Willis is the advertising manager for Bargain Shoe Store. She is currently working on a major promotional campaign, Her ideas include the instailation of a new ighting system and increased display space that wil add $24,000 in fixed costs to the $270,000 currently spent. In addition, Mary is proposing that a 5% price decrease ($40 to $38) will produce a 20% increase in sales volume (20,000 to 24,000) Variable cests wil remain at $24 per pair of shoes. Management is impressed with Mary's ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety Your answer is incorect. Try again Compute the current break-even point in units, and compare it to the break-even point in units if Mary's ideas are used. (Round answers to o decimal places, eg. 1,225.) Current break-even point 11250 pairs of shoes New break-even point 12250 pairs of shoes LINK TO TEXT LINK TO TEXT LINK TO TEXT Your anawer is incorrect. Try again. Compute the margin of safety ratio for current operations and after Mary's changes are introduced (Round answers to 0 decimal piaces, eg. 15%) Current margin of safety ratio 44 New margin of safety rwtie Ver 24 142 bacy dicx 2092019 2n e &SosIns All RiGhes Reserved A Division of htnwtexSons Inc

Answer 1

Break even point = Total fixed costs/(Selling price per unit - Variable cost per unit)

Current Break even point = 270,000/(40-24)

= 16,875 shoes

New Break even point = 294000/(38-24)

= 21,000 Shoes

Margin of safety ratio = (Sales - Break even sales)/Sales

Current= (20,000-16875)/20000 = 15.625%

New = (24000-21000)/24000 = 12.5%