Calculate the break-even point and margin of safety ratio, and prepare a CVP income statement before and after changes in the business environment. P6.59B (LO 1, 2, 3, 4) Barb Tsai is the advertising manager for Thrifty 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 currently spent. In addition, Barb is proposing that a 5% price decrease (from $40 to $38) will produce an increase in sales volume from 20,000 to 24,000 units. Variable costs will remain at $24 per pair of shoes. Management is impressed with Barb's ideas but is concerned about the effects that these changes will have on the break-even point and the margin of safety. Instructions a. Calculate the current break-even point in units, and compare it with the break- even point in units if Barb's ideas are used. b. Calculate the margin of safety ratio for current operations and after Barb's changes are introduced. (Round to one decimal place.) b. Current margin of safety ratio = 15.6% c. Prepare CVP income statements for current operations and after Barb's changes are introduced. Would you make the changes suggested?
Calculate the break-even point and margin of safety ratio, and prepare a CVP income statement before and after changes in the business environment. P6.59B (LO 1, 2, 3, 4) Barb Tsai is the advertising manager for Thrifty 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 currently spent. In addition, Barb is proposing that a 5% price decrease (from $40 to $38) will produce an increase in sales volume from 20,000 to 24,000 units. Variable costs will remain at $24 per pair of shoes. Management is impressed with Barb's ideas but is concerned about the effects that these changes will have on the break-even point and the margin of safety. Instructions a. Calculate the current break-even point in units, and compare it with the break- even point in units if Barb's ideas are used. b. Calculate the margin of safety ratio for current operations and after Barb's changes are introduced. (Round to one decimal place.) b. Current margin of safety ratio = 15.6% c. Prepare CVP income statements for current operations and after Barb's changes are introduced. Would you make the changes suggested?
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Calculate the break-even point and margin of safety ratio, and prepare a CVP income
statement before and after changes in the business environment.
P6.59B (LO 1, 2, 3, 4) Barb Tsai is the advertising manager for Thrifty 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 currently spent. In addition, Barb is proposing that a 5%
price decrease (from $40 to $38) will produce an increase in sales volume from
20,000 to 24,000 units. Variable costs will remain at $24 per pair of shoes.
Management is impressed with Barb's ideas but is concerned about the effects that
these changes will have on the break-even point and the margin of safety.
Instructions
a. Calculate the current break-even point in units, and compare it with the break-
even point in units if Barb's ideas are used.
b. Calculate the margin of safety ratio for current operations and after Barb's
changes are introduced. (Round to one decimal place.)
b. Current margin of safety ratio = 15.6%
c. Prepare CVP income statements for current operations and after Barb's changes
are introduced. Would you make the changes suggested?
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