Writing
Baylor University Cost Volume Analysis Calculations Report

Baylor University

Question Description

Help me study for my Accounting class. I’m stuck and don’t understand.

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.

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Final Answer

Hello again,Attached please find the completed calculations (in Excel) and memo (in Word). Please review these at your convenience and let me know if you have any questions or if you feel that anything needs to be changed. Otherwise, I look forward to working with you again in the future.Thank you!

Break-Even Point
Current:
Fixed Costs
$
Variable Costs $
Price
$

270,000
24
40

16,875 270,000 ÷ (40 - 24)

294,000
24
38

21,000 (270,000 + 24,000) ÷ (38- 24)

New:
Fixed Costs
$
Variable Costs $
Price
$

Safety Margin
Current:
16% (20,000 - 16,875) ÷ 20,000
New:
13% (24,000 - 21,000) ÷ 24,000

Cost-Vol...

seyswho (457)
University of Maryland

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