Alma Ortiz is the advertising manager for Cost Less Shoe Store. She is currently work
ing on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $
in fixed costs to the $
cur
rently spent. In addition, Alma is proposing that a
price decrease
from $
to $
will produce an increase in sales volume from
to
units Variable costs will remain at $
per pair of shoes. Management is impressed with Alma
s ideas but concerned about the effects that these changes will have on the break
even point and the margin of safety
Cost Volume ProfitInstructions
a
Compute the current break
even point in units, and compare it to the break
even pointin units if Alma
s ideas are used.
b
Compute the margin of safety ratio for current operations and after Alma
s changesare introduced.
Round to nearest full percent.
c
Prepare a CVP income statement for current operations and after Alma
s changes areintroduced.
Show column for total amounts only.
Would you make the changessuggested?
