Alice Shoemaker is the advertising manager for Value Shoe Store.She is currently working on a major promotional campaign. Her ideasinclude the installation of a new lighting system and increaseddisplay space that will add $34,000 in fixed costs to the $270,000currently spent. In addition, Alice is proposing that a 5% pricedecrease ($40 to $38) will produce a 20% increase in sales volume(20,000 to 24,000). Variable costs will remain at $22 per pair ofshoes. Management is impressed with Alice's ideas but concernedabout the effects that these changes will have on the break-evenpoint and the margin of safety.
1) Compute the current break-even point in units, and compareit to the break-even point in units if Alice's ideas areused.
2) Compute the margin of safety ratio for current operationsand after Alice's changes are introduced