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 (6) (C) Prepare a CVP income statement for current operations and after Blossom's changes are introduced. BARGAIN SHOE STORE CVP Income Statement Current New Would you make the changes suggested?

Answer 1

CVP Income Statement
	Current	New
Sales	400000	456000
Variable expenses	240000	288000
Contribution margin	160000	168000
Fixed expenses	144000	154000
Net income/(loss)	16000	14000
No, do not make the changes as net income decreases
Workings:
	Current	New
Sales	=20000*20	=24000*19
Variable expenses	=20000*12	=24000*12