Cost-Volume-Profit Analysis

timer Asked: May 13th, 2018
account_balance_wallet $25

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.

class textbook

Kieso, D. E., Kimmel, P. D., & Weygandt, J. J. (2016). Accounting Tools for Business Decision Making. In D. E. Kieso, P. D. Kimmel, & J. J. Weygandt. John Wiley & Sons.

Tutor Answer

School: Cornell University


Running Head: Cost Volume Profit Analysis


Cost volume profit analysis
Bargain Shoe Store
Institutional Affiliation

Cost volume profit analysis


Based on the scenario presented of Mary Willis, it is imperative to compute the relevant
concepts to enable efficient decision making based on the presented facts. The following a
complete computations that will assist in making the decision on whether to accept or reject the
Bargain Shoe Store current break-even sales
Break-even sales=Fixed Costs/Contribution Margin per Unit
Contribution Margin Per Unit= Selling Price Per Unit- Variable Cost Per Unit.
In the information, we are given the current fixed costs as $270,000, selling price per unit as 40$
and the variable cost per unit as 24$. Therefore, substituting the information in the break-even
formula is as follows:
Contribution Margin Per Unit= (40$-24$) per unit=$16 contribution margin per unit
Break-even sales=$270,000/$16 per unit=16,875 units
Proposed/New Bargain Shoe Store break-even sales
The proposed changes will have an effect in the fixed costs as well as the selling price.
Additional $24,000 to the current fixed costs and reduction in the selling price to 38$. However,
the variable cost per unit is not expected...

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Thanks, good work

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