ACC561 UOPX Advertising Manager for Bargain Shoe Store Case Study Analysis

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Question Description

Purpose of Assignment 

The Case Study focuses on CVP (Cost-Volume-Profit), break-even, and margin of safety analyses which allows students to experience working through a business scenario and applying these tools in managerial decision making. 

Resources
  • Cost-Volume-Profit Analysis Grading Guide
  • Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Commission (SEC) 
  • Tutorial help on Excel and Word functions can be found on the Microsoft Office website. There are also additional tutorials via the web offering support for Office products. 

Scenario: Mary 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 $24,000 in fixed costs to the $270,000 in fixed costs currently spent. In addition, Mary is proposing 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 Mary's ideas but concerned about the effects these changes will have on the break-even point and the margin of safety.

Assignment Steps

Complete the following: 

  • Compute the current break-even point in units, and compare it to the break-even point in units if Mary's ideas are used.
  • Compute the margin of safety ratio for current operations and after Mary's changes are introduced (Round to nearest full percent).
  • Prepare a CVP (Cost-Volume-Profit) income statement for current operations and after Mary's changes are introduced.

Prepare a maximum 700-word informal memo to management addressing Mary's suggested changes. 

  • Explain whether Mary's changes should be adopted. Why or why not? Analyze the above information (three bullet points above) and use this information to support your suggestion.

Show your work in Microsoft Word or Excel. 

Complete calculations/computations using Microsoft Word or Excel.

Submit your assignment.

Tutor Answer

chemtai
School: UCLA

please find the attached files. i look forward to working with you again. good bye

Running head: COST-VOLUME-PROFIT ANALYSIS

Cost-Volume-Profit Analysis
Name
Institution
Course
Tutor
Date

1

COST-VOLUME-PROFIT ANALYSIS

2

Cost-Volume-Profit Analysis
Calculations
a. Current break-even point in units
$40y=$24y+$270,000
In this case y stands for the pair of shoes
Therefore, $16y=$270,000
Hence y=16,875 pairs of shoes (units).
New break-even point: $38y=$24y+ ($270,000+$24,000)
$14y=$294,000
y=21,000 pairs of shoes
b. margin of safety ratio
($20,000*$40)- (16,875*$40)
i.

Current margin of safety ratio=16%.

ii.

New margin of safety ratio
(24,000*$38)- (21,000*$38) =13%
c. CVP (Cost-Volume-Profit) income statement for the current operations after Mary
changes are introduced
i.

Current CVP Income Statement

COST-VOLUME-PROFIT ANALYSIS

3

Item

Amount

Sales (20,000*$40)

$800,000

Variable Expenses

$480,000

Contribution Margin

$320,000

Fixed expenses

$270,000

Net Income

$50,000

ii.

New CVP Income statement after integrating Mary’s changes

Item

Amount

Sales (24,000*$38)

$912,000

Variable Expenses

$576,000

Contribution Margin

$336,000

Fixed expenses

$294,000

Net Income

$42,000

Memo
To: Bargain Shore Store Management
From: Student
Subject: Cost-Volume-Profit Analysis (Mary’s Suggested Changes)
Date: 18th July 2019

COST-VOLUME-PROFIT ANALYSIS

4

This memo is meant to bring t...

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Review

Anonymous
awesome work thanks

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