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Delicious77 [7]
3 years ago
7

Mary Willis is the advertising manager for Sheffield Shoe Store. She is currently working on a major promotional campaign. Her i

deas include the installation of a new lighting system and increased display space that will add $24,600 in fixed costs to the $128,000 currently spent. In addition, Mary is proposing that a 5% price decrease ($20 to $19) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $12 per pair of shoes. Management is impressed with Mary’s ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety. Collapse question part (a) 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 0 decimal places, e.g. 1,225.) Current break-even point pairs of shoes New break-even point pairs of shoes
Business
1 answer:
Setler [38]3 years ago
8 0

Answer:

If Mary's idea is implemented the break-even point would increase from 16,000 units to 21,800 units

Explanation:

<em>The break-even point is the level of activity where a business makes no profit or loss. At this level of activity, the total contribution equals the total fixed costs. </em>

<em>To calculate the break even point in units, we use the formula below: </em>

<em>Break-even point = Fixed cost for the period / selling price - variable cost</em>

Current break-even point = 128,000/(20-12)

                                      = 16,000  units

With Mary's idea, the break-even point will be

New break-even point = ( 128,000+ 24600)/(19-12)

                                    = 21,800  units

If Mary's idea is implemented the break-even point would increase from 16,000 units to 21,800 units

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Explanation:

Solution

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Hence Catherine contributes 15% towards the total coverage

8 0
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