# 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.

WATCH THE VIDEO IN THE DISCUSSIONS FOR HELP WITH CALCULATIONS.

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