Acc346 Managerial Accounting: P22-4A (P5-4A) Alice Shoemaker is the advertising manager

Acc346 Managerial Accounting

P22-4A (P5-4A)
Alice Shoemaker is the advertising manager for Value 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 $34,000 in fixed costs to the $270,000 currently spent. In addition, Alice 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 $22 per pair of shoes. Management is impressed with Alice'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 Alice's ideas are used.
b) Compute the margin of safety ratio for current operations and after Alice's changes are introduced.
c) Prepare a CVP income statement for current operations and after Alice's changes are introduced.
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