Question

Mary Willis is the advertising manager for Ayayal 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 $22,000 in fixed costs to the $285,000 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 costs will remain at $24 per pair of shoes. Managemen 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. (a) x Your answer is incorrect. 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, e.g. 1,225.) 16,875 pairs of shoes Current break-even point T New break-even point T p airs of shoes

Answer 1

|x = Pairs of shoes $ 40x = $ 40% - $ 24x = $ 16x = $ 24x + $ 286000 $286,000 $286,000 $ 286000/16 17,875 x = Current Break even point x= x = Pairs of shoes $ 38x = $ 38x = $ 38x - $ 24x = $ 14x = $24x + $286000 + $ 22000 $ 24x + $ 308000 $308,000 $308,000 $308000/14 22,000 New Break even point

So when the new break even point is compared to current break even point the pairs of shoes has increased to a great extent when compared to increase in costs.

So Mary's idea is effective and efficient.

Thank you.