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 720-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.
Showyour work
in Microsoft® Word
or Excel®.
Completecalculations/computations
using Microsoft® Word
or Excel®.
Format your
assignment consistent with APA guidelines.
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