Cost-Volume-Profit Analysis

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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.

 

Scenario

Charlotte Henry is the advertising manager for Bargain TV Store. She is currently working on a major promotional campaign, based on a large dollar market research project that was recently completed. Her ideas include the installation of a new lighting system and increased display space that will add $20,000 in fixed costs to the $250,000 in fixed costs currently spent. In addition, Charlotte is proposing a 5% price decrease ($50 to $47.5) will produce a 20% increase in sales volume (50,000 to 60,000) according to the research. Variable costs will remain at $25 per TV since there is no change to purchasing or manufacturing. Management is impressed with Charlotte’s research but has come to you for review.

 

Resources

  • Accounting: Tools for Business Decision Making-Paul D. Kimmel; Jerry J. Weygandt; Donald E. Kieso
  • Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Commission (SEC)
  • Tutorial help on Excel and Word functions can be found on the Microsoft Office website. There are also additional tutorials via the web offering support for Office products.

Required

Prepare a 550 word memo including:

 

  • Compute the current break-even point in units and dollars, and compare it to the break-even point in units and dollars if the ideas are used. [Show your work]
  • Prepare a proforma income statement for current operations and if the changes are adopted.[Show your work]
  • Make a recommendation to management about the proposal.

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