Create Memo Based On Calculations Already Completed CVP Break Even Margin Of Safety

Question Description

Purpose of Assignment

The Case Study focuses on CVP (Cost-Volume-Profit), break-even, andmargin of safety analyses which allows students to experience workingthrough a business scenario and applying these tools in managerialdecision 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 forBargain Shoe Store. She is currently working on a major promotionalcampaign. Her ideas include the installation of a new lighting systemand 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 a5% price decrease (\$40 to \$38) will produce a 20% increase in salesvolume (20,000 to 24,000). Variable costs will remain at \$24 per pair ofshoes. Management is impressed with Mary’s ideas but concerned aboutthe effects these changes will have on the break-even point and themargin 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 afterMary’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 thisinformation 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.