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Question: scenario mary willis is the advertising manager for bargain shoe...
Question details
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.
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