Question: 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.

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: Mark Willis is the advertising manager for Bargain Shoe Store. He is currently working on a major promotional campaign. His 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, Mark is proposing a 5% price decrease ($40 to $38) will produce a 20% increase in sales volume (20,000 to 24,000) according to market research. Variable costs will remain at $24 per pair of shoes since there is no change to purchasing or manufacturing. Management is impressed with Mark’s research but concerned about the effects these changes will have on the break-even point.

Assignment Steps

Complete the following: 

  • Compute the current break-even point in units, and compare it to the break-even point in units if Mark’s ideas are used.
  • Prepare a Cost-Volume-Profit (CVP) analysis, including a proforma income statement for current operations and if Mark’s changes are adopted.

Answer: Cost-volume-profit analysis is a financial tool used to determine the changes in costs and volume…….

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