Sharon Willis is the advertising manager for Bargain Shoe Store. She is currently working on a major promotional campaign. Her ideasinclude the installation of a new lighting system and increased display space that will add $18,200 in fixed costs to the$133,000 currently spent. In addition, Sharon is proposing that a 5% price decrease ($20 to $19) will produce a 20% increase in salesvolume (20,000 to 24,000). Variable costs will remain at $12 per pair of shoes. Management is impressed with Sharon's ideas butconcerned about the effects that these changes will have on the break-even point and the margin of safety.(a)Prepare a CVP income statement for current operations and after Sharon's changes are introduced.BARGAIN SHOE STORECVP Income StatementCurrent>>EA$$Would you make the changes suggested?New$>$SA

Step 1: In the CVP Income statement, the contribution margin is calculated by subtracting the…

Answered: Sharon Willis is the advertising…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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. Mr. Mohammed is the Marketing director of Hilti Division in Bin Salim Enterprise in Sultanate of Oman. Presently he is working on a special marketing campaign. He has given a new idea that we should increase the display space and also install new security system. This will increase $25,500 in fixed cost, which is presently $202,500. In addition, Mr. Mohammed is proposing that a 5% decrease in price ($30 to $28.50) will produce a 20% increase in sales volume. Present sales volume is 20,000 units and sales price is $30 per unit. Variable cost will remain at $16.50 per unit. Required: a) Calculate the current break-even point in units and compare it to the break-even point in units if Mr. Mohammed’s idea is accepted. b) Prepare CVP income statement for the current operations and after Mr. Mohammed’s changes are introduced.
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Richie Chandra is the advertising manager for Skechers brand. 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, Richie is proposing that 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 Richie’s ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety. Instructions a) Compute the current break-even point in units, and compare it to the break-even point in units if Richie’s ideas are used. b) Compute the margin of safety ratio for current operation and after Richie’s changes is introduced. c) Prepare a CVP income statement for current operations and after Richie’s changes are introduced. d) Would you make the changes…
The fixed costs of Shanita, nv are $471,000 and the total variable costs for its only product are 30% of the sales price, which is $200. Shanita currently sells 5,400 units per month and is looking to sell more. Consider each of the following independently: Part A A new marketing campaign is being contemplated that would cost $4,000 per month and have the expected effect of increasing sales per month by 260 units. If this campaign is undertaken, what is the expected effect on monthly income? Part B Management is considering adding a new feature to its product that will cause an increase in variable costs of $7 per unit. It is expected that sales will increase by 310 units per month if this feature is added. If the feature is added, what should be the overall effect on the company's monthly income? Part C The marketing manager is considering lowering base salaries of salespeople by a collective amount of $41,000 per month while increasing the sales commission by $6 per unit. He believes…
Vice President for Sales and Marketing at Waterways Corporation is planning for production needs to meet sales demand in the coming year. He is also trying to determine how the company's profits might be increased in the coming year. This problem asks you to use cost-volume-profit concepts to help Waterways understand contribution margins of some of its products and decide whether to mass-produce any of them. Waterways markets a simple water control and timer that it mass-produces. Last year, the company sold 635,000 units at an average unit selling price of $5.00. The variable costs were $2,222,500, and the fixed costs were $619,125. (a1) Your answer is correct. What is the product's contribution margin ratio? (Round ratio to O decimal places, e.g. 25%.) Contribution margin ratio 30 % (a2) eTextbook and Media Your answer is correct. What is the company's break-even point in sales units and in sales dollars for this product? Break-even point in units 412750 units Break-even point in…
McGilla Golf has decided to sell a new line of golf clubs and would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. The clubs will sell for $810 per set and have a variable cost of $410 per set. The company has spent $151,000 for a marketing study that determined the company will sell 55,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,600 sets of its high-priced clubs. The high-priced clubs sell at $1,110 and have variable costs of $710. The company will also increase sales of its cheap clubs by 11,100 sets. The cheap clubs sell for $450 and have variable costs of $235 per set. The fixed costs each year will be $9,110,000. The company has also spent $1,120,000 on research and development for the new clubs. The plant and equipment required will cost $28,770,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net…
Vice President for Sales and Marketing at Waterways Corporation is planning for production needs to meet sales demand in the coming year. He is also trying to determine how the company's profits might be increased in the coming year. This problem asks you to use cost-volume-profit concepts to help Waterways understand contribution margins of some of its products and decide whether to mass-produce any of them. Waterways markets a simple water control and timer that it mass-produces. Last year, the company sold 735,000 units at an average unit selling price of $3.60. The variable costs were $1,852,200, and the fixed costs were $508,032.

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