Mary Willis h The Advert X × //edugen wileyplus.com/edugen/student/mainfr.un Wey

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Mary Willis h The Advert X × //edugen wileyplus.com/edugen/student/mainfr.un Weygandt, Managerial Accounting. 7e MANAGEMENT ACCOUNTING (ACCI 2120) Gradebook ORION Dewnloadable eText book nt CALCULATOR TER VERSION Problem 5-4A (Part Level Submission) 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 $39,000 in fixed costs to the S 42.000 orrently spent 1 addition Mr. propos ng hat 5% nce i se inos, roduce a 20% increase in sales volume (20,000 to 24,000 variable costs will remain at S36 per pair of shoes Hans m nts none oth Hay s den ba o un art end that these changes will have on the break-even point and the margin of safety (a) Your answer is correct. Compute the current break-even point in units, and compare it to the break even point in units if Mary's ideas are used. (Round answers to o decimal places, e.g. 1,225) Current break-even point New break-even point 17625 pairs of shoes 22000 pairs of shoes SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINK TO TEXT LINK TO TEX Attempts: 1 of 2 used

Explanation / Answer

c) Income statement for current and new operations is shown as follows:-

  Bargain Shoe Store

CVP Income Statement (Amount in $)

The changes suggested should be made because this will result in increase in net income from $48,000 to $186,000.

Workings:

i) The current units sold are 20,000 units at sale price of $60 per unit and variable cost per unit is $36. The current fixed cost is $423,000. In the new proposed operations, units sold are 24,000 units at $57 per unit and variable cost remains same at $36 per unit but fixed cost of $423,000 is increased by $39,000 to $462,000.

Particulars Current (20,000 units) New (24,000 units) Sales (20,000 units*$60) = 1,200,000 (24,000 units*$57) = 1,368,000 Less: Variable expenses (20,000 units*$36) = (720,000) (20,000 units*$36) = (720,000) Contribution margin 480,000 648,000 Less: Fixed expenses (423,000) (462,000) Net Income/(Loss) 48,000 186,000

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