Jayzene Griffiths is the newly appointed manager for a fashionable shoe store. Her marketing ideas include the installation of a new lighting system and increased display space that will add $30,000 in fixed costs to the $18,000 currently being spent. In addition, Jayzene is proposing that a 10% decrease ($30.00 to $27.00) will produce a 30% increase in sales volume (5,000 to 6,500). Variable costs will remain at $15 per pair of shoes. Management is impressed with Jayzene’s ideas, but concerned about the effects these changes will have on the breakeven point and margin of safety. Required: Compute the margin of safety ratio for both situations. Prepare CVP income statements for both the current and proposed situations. Would you make changes suggested by Jayzene? Give reasons for your answer
Jayzene Griffiths is the newly appointed manager for a fashionable shoe store. Her marketing ideas include the installation of a new lighting system and increased display space that will add $30,000 in fixed costs to the $18,000 currently being spent. In addition, Jayzene is proposing that a 10% decrease ($30.00 to $27.00) will produce a 30% increase in sales volume (5,000 to 6,500). Variable costs will remain at $15 per pair of shoes. Management is impressed with Jayzene’s ideas, but concerned about the effects these changes will have on the breakeven point and margin of safety.
Required:
Compute the margin of safety ratio for both situations.
Prepare CVP income statements for both the current and proposed situations.
Would you make changes suggested by Jayzene? Give reasons for your answer.
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