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Healthy Spring Water Company

In: Business and Management

Submitted By trose41
Words 575
Pages 3
Tiffany Elliott
November 14, 2012
MKT 2100 – Case #5

HEALTHY SPRING WATER COMPANY

Summary:
The Healthy Spring Water Company sells bottled water, priced at $20 per 10 gallon bottles, to homes and offices. On average, the company sells about 2000 units per day. With its current pricing, the demand for the water is stable, but management is always looking for new ways to shake things up and increase profits. The company has thought about repositioning their water as a premium product, which would increase the unit price; and in return increase profit. If this idea goes the way the company predicts, they could charge 20% more for its water.

Questions:
1. What is the maximum sales loss (in % and units) that Healthy Spring could tolerate before a 20% price increase would fail to make a positive contribution to its profitability? (That is, what is the basic break-even sales change?)

Answer: 25% sales loss (1500 break-even sales change)
-.20 divided .8 = .25 (12/20+.20=.8)
__________________________________________________________________________________________________________________

2. By how much would Healthy Spring's contribution increase if its sales declined by 15% following the price increase?

Answer: -1.54
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3. In order for Healthy Spring to reposition itself as premium water, management believes that it will have to upgrade the packaging of its product. The company will deliver the water in glass rather than plastic bottles and the bottles will be "safety sealed" to insure their cleanliness until the covering is removed in the customer's home. These changes will add $1.00 per bottle to the variable cost of sales. What is the new break-even volume with the 20% price increase?

Answer: 20% sales loss (1600 break-even sales

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