Question

Scenario
Mary Willis is the advertising manager for bargain 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 $24,000 in fixed costs to the $270,000 in fixed cost currently spent. iIn addition Mary Is proposing 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 impressed with Mary's ideas but concerned about the effects these changes will have on the break-even point and the margin of safety.
complete the following:
1) compute the current break-even points in units, and compare it to the break-even point in Mary's ideas are used.
2)Compute the margin of safety ratio for current operations and after Mary's changes are introduced (round to the nearest full percent).
3)Prepare a CVP(Cost-Volume-Profit) income statement for current operations and after Mary's changes are introduced.
prepare:
a minimum of 700 word informal memo to management addressing Mary's suggested changes.
explain:
Whether Mary's changes should be adopted. why or why not? Analyze the above information ( the three bullet points above) and use this information to support your suggestion.

Answer 1

mary's changes should not be adopted becouse additional contribution margin is lessthan in compare to additional fixed cost (336000-32000)<24000.