Cost Volume Profit Analysis

Anonymous
timer Asked: Feb 15th, 2018
account_balance_wallet $40

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.

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.

Tutor Answer

Doctor_Ralph
School: University of Virginia

Attached.

Running head: CVP, BREAK-EVEN, AND MARGIN OF SAFETY ANALYSES

Cost-Volume-Profit, Break-Even, and Margin of Safety Analyses
Names:
Institution:

1

CVP, BREAK-EVEN, AND MARGIN OF SAFETY ANALYSES
Memo
To:

The management

From:

Financial analyst

Subject:

Adoption of Mary’s changes

There are a number of changes that Mary Willis has put forward on the current sales
and production. As you may be aware, the suggested changes seek to lower the selling price
of products from $40 to $38 and add an extra $24,000 on advertisement, which will result in
an increase to the existing $270,000 fixed costs, a change that seeks to raise the sales volume
from 20,000 units to 24,000 units per unit. However, it may be important to conduct a costvolume-profit (CVP), break-even, and margin of safety analyses so as to identify the financial
implications of the changes before making the decision of whether or not to implement the
changes. As is the case with this and other organizations, changes that could result in a rise in
profits could be welcome. However, it would not be wise to incorporate changes that could
reduce the profits as it will affect both the...

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Anonymous
Goes above and beyond expectations !

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