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.
Assignment Steps
Resources: 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 $24 per pair of shoes. Management is impressed with Mary's ideas but concerned about the effects these changes will have on the break-even point and the margin of safety.
Complete the following:
- Compute the current break-even point in units, and compare it to the break-even point in units if Mary's ideas are used.
- Compute the margin of safety ratio for current operations and after Mary's changes are introduced (Round to nearest full percent).
- Prepare a CVP (Cost-Volume-Profit) income statement for current operations and after Mary's changes are introduced.
Prepare a maximum 700-word informal memo to management addressing Mary's suggested changes.
- Explain whether Mary's changes should be adopted. Why or why not? Analyze the above information (three bullet points above) and use this information to support your suggestion.
Show your work in Microsoft® Word or Excel®.
Complete calculations/computations using Microsoft® Word or Excel®.
Format your assignment consistent with APA guidelines.
Explanation & Answer
Hey here you go. I hope this will answer all your queries. Thanks
Current Scenario
Proposed Scenario
Fixed Cost ($)
270000
294000
Price($)
40
38
Current Scenario
Proposed Scenario
Break Even Point (units)
16875
21000
Margin of Safety (in %)
16
13
CVP Statement
Current Scenario
Revenue ($)
Variable Cost
Contribution Margin
Contribution Margin Ratio (in %)
800000
480000
320000
40
Proposed Scenario
912000
576000
336000
37
Sales Volume
20000
24000
Contribution Margin Ratio (%)
40
37
Variable cost ($/unit
24
24
Variable Cost ($)
480000
576000
Total Cost ($)
750000
870000
Total Revenue ($)
800000
912000
Profit ($)
50000
42000
Fixed Costs ($)
Variable Cost ($ per unit)
Total Cost ($)
Sales Pr...
Review
Review
24/7 Homework Help
Stuck on a homework question? Our verified tutors can answer all questions, from basic math to advanced rocket science!
Similar Content
Related Tags
We Were Eight Years in Power
by Ta-Nehisi Coates
The Atlantis Gene
by S. A. Beck
Ethan Frome
by Edith Wharton
Murder on the Orient Express
by Agatha Christie
All the Kings Men
by Robert Penn Warren
The Second Sex
by Simone de Beauvoir
Shattered - Inside Hillary Clintons Doomed Campaign
by Amie Parnes and Jonathan Allen
The Turn of the Screw
by Henry James
Orphan Train
by Christina Baker Kline