Question

Problem 18-5A a-c (Part Level Submission) (Video) Blossom 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 $10,000 in fixed costs to the $144,000 currently spent. In addition, Blossom is proposing that a 5% price decrease ($20 to $19) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $12 per pair of shoes. Management is impressed with Blossom's ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety. 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 Blossom's ideas are used. Current break-even point pairs of shoes New break-even point pairs of shoes

Answer 1

Current Level :

Selling Price = $20

Variable Cost = $12

Contibution MArgin = 20-12 = 8

fixed cost = 144,000

Break Even Point = Fixed cost /Contribution Margin = 144,000 /8

= 18,000 Pair of shoes (Answer)

New Level

SellingPrice = $19

Varaible cost = $12

Contibution Margin = 19-12 = 7

Fixed cost = 144,000+10,000 =154,000

Break Even Point =154,000/7

= 22,000 Pair of Shoes (Answer)