Cost-Volume-Profit Analysis

Assignment Content

  1. Purpose of Assignment 
    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.

    week 5 grading rubric.doc


    Scenario: Jessica Cox is the advertising manager for Specialty Shoes. 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 $24,000 in fixed costs to the $270,000 in fixed costs currently spent. In addition, Jessica is proposing a 5% price decrease ($40 to $38) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $24 per pair of shoes. Management is impressed with Jessica’s ideas but concerned about the effects these changes will have on the break-even point and the margin of safety.

    Assignment Steps

    Complete the following:

    • Compute the current break-even point in units, and compare it to the break-even point in units if Jessica’s ideas are used.
    • Compute the margin of safety ratio for current operations and after Jessica’s changes are introduced (Round to nearest full percent).
    • Prepare a CVP (Cost-Volume-Profit) income statement for current operations and after Jessica’s changes are introduced.
    • Prepare a maximum 500-word informal memo to management addressing Jessica’s suggested changes.
    • Explain whether Jessica’s changes should be adopted. Why or why not? Analyze the your calculations (three bullet points above) and use this information to support your suggestion.
    • USE the memo template provided in week 1.

      memo template.docx

      Show your work in Excel.

      Complete calculations/computations using Excel.  

      Submit a word doc and your excel spreadsheet.

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