Pridecrenf Problem 18-4A (Part Level Submission) Mary Willis is the advertising

Question

Pridecrenf Problem 18-4A (Part Level Submission) Mary Willis is the advertising manager tor Dargain Shoe Store. She is currently orking on a majo promotional campaign. Her ideas include the installation of a newlighting system and increased display space that will add 310 200 in fixed costs to the?133 000 current spe In addition, Mary is proposing that a 5% price decrease ($20 to $19 will produce a 20% increase in sales volum e 20,000 to 24,000 ariable costs wil emain at $12 per p r of shoes. Management is impressed th Mary's ideas but concemed about the e"ects that these changes will have on the break-even point and the margin of safety. promosonane (20,00 2400 nt. man 2 afety. t 240 ie i Compute the current break even point in units, and compare it to the break even paint in units if Mary's ideas are used. (Round ansvrers to 0 decimal places, e.g. 1,225.) Current break-even point New break-even point Vs idea pairs of shoes pairs ot shoes

Explanation / Answer

(a) Current break-even point = Fixed costs / (Selling price - Variable cost per unit) = $133,000 / ($20 - $12) = 16,625 pairs of shoes

New break-even point = Fixed costs / (Selling price - Variable cost per unit) = ($133,000 + $18,200) / ($19 - $12) = 21,600 pairs of shoes

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