60.1K

Verified Solution

Link Copied!

Scenario

Wanda has analyzed her sales figures and decided that she is charging too much for Bison Bites, because they only represent 5 percent of her total income. She has a good profit margin on them, so she believes she can reduce the price by $0.25 per biscuit and still make the product profitable.

She comes to you with the proposal above, along with a few related questions. She has provided you with income and expense information to help you figure this out what she should do.

Help Wanda answer the following questions:

1. What effect will this price reduction have on Salty Pawzs break-even point? Assume that the product sales mix remains unchanged. (Tip: Remember that because Bison Bites are included in the Party Pooch, the price change on Bison Bites would also affect the sales price of the Party Pooch.)
2. If Wanda reduces the price on the Bison Bites to $1.50, she believes it will cause customers buying Chicken Cuties to switch to the Bison Bites. The revised product mix is provided in the table below. What is the effect on Wandas break-even point if she reduces the bison product price and customers buy more Bison Bites and fewer Chicken Cuties? (Tip: Remember that because Bison Bites are included in the Party Pooch, the price change on Bison Bites would also affect the sales price of the Party Pooch.)
3. In addition to the numbers, provide Wanda with a written explanation of the changes to her break-even point under both of the scenarios presented.

Products/Services	% of Sales
Party Pooch	45%
Chicken Cuties	13%
Bison Bites	10%
Lamb Lovies	32%

roduct	% of Sales	Sales Price	COGS	Contribution	Profit Margin	Weighted Profit Margin
Party Pooch	45%	$20.00	$10.40	$9.60	48.00%	21.60%
Chicken Cuties	18%	$15.00	$7.80	$7.20	48.00%	8.64%
Bison Bites	5%	$21.00	$10.80	$10.20	48.57%	2.43%
Lamb Lovies	32%	$24.00	$12.60	$11.40	47.50%	15.20%
Total Sales % (Must equal 100%)	100%			Average Profit Margin	47.87%

Product Breakeven in Dollars and Units

	BREAKEVEN	Party Pooch	Chicken Cuties	Bison Bites	Lamb Lovies
Monthly In Dollars	$3,070.91	$1,381.91	$552.76	$153.55	$982.69
In Units		69	37	7	41

Grading Rubric

Criteria	Not Evident 0%	Developing 55%	Proficient 80%	Distinguished 100%	Weight
Calculate the break-even point for the new prices if the product mix remains unchanged.					20
Calculate the break-even point if the bison product price is reduced, assuming customers buy more Bison Bites and fewer Chicken Cuties.					20
Illustrate the break-even points calculations.					20
Predict the effects of the new prices based on the break-even point calculations.					30
Articulation of response (citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas).					10
				Total:	100%

Income Statement Based on 14,000 units sold Current Price Reduced Price INCOME: Party Pooch Chicken Cuties Bison Bites Lamb Lovies TOTAL INCOME: COST OF GOODS SOLD: Party Pooch Chicken Cuties Bison Bites Lamb Lovies Total cost of sales GROSS PROFIT OPERATING EXPENSES: Rent Electricity Telephone Water /Sewer Internet Website Salaries Owner's Draw Office Supplies Loan Payment Insurance Other TOTAL EXPENSES NET INCOME BEFORE TAXES $- 0 $- 0

Answer & Explanation Solved by verified expert

See Answer