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 $19,000 in fixed costs to the $128,000 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. (a) 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 New break-even point pairs of shoes pairs of shoes
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 $19,000 in fixed costs to the $128,000 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. (a) 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 New break-even point pairs of shoes pairs of shoes
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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 $19,000 in fixed costs to the
$128,000 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.
(a)
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
New break-even point
pairs of shoes
pairs of shoes
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