Question

can anyone help me to solve this?

P5.4 (LO 3,4,5), E Bora Lee 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 W24,000,000 in fixed costs to the W270,000,000 currently spent. In addition, Bora is proposing that a 5% price decrease (W40,000 to W38,000) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at W24,000 per pair of shoes. Management is im- pressed with Bora's ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety. Instructions a. Compute the current break-even point in units, and compare it to the break-even point in units if Bora's ideas are used. b. Compute the margin of safety ratio for current operations and after Bora's changes are introduced. (Round to nearest full percent.) c. Prepare a CVP income statement for current operations and after Bora's changes are introduced. (Show column for total amounts only) Would you make the changes suggested? CT5.2 The condensed income statement for Peri and Paul plc for 2020 is as follows.

Answer 1

solution: a) Current BEP in units = Fixed cost/CM per unit 270000000/(40000-24000) | 16875 units 16875 units 18375 units New BEP in units = Fixed cost/CM per unit (270000000+24000000)/(40000-24000) b) Margin of safety ratio= (Actual sales-BEP sales)/Actual sales Current=(20000-16875)/20000 New=(24000-18375)/24000 23% c) CVP Income statement sales (20000*40000), (24000*40000) variable expense (20000*24000), (24000*24000) Contribution margin Fixed expense Net income/(loss) Current New 800000000 960000000 480000000 576000000 320000000 384000000 270000000294000000 (270000000+24000000) 50000000 90000000 The company should accept the recommended changes as it results in increase in net income.