Price indifference point with a price reduction Pro-Dog Company has the concession contract at several baseball stadiums around the state. They sell hot dogs for $1.25 each. The food cost of the hot dogs is $.40 each. Vendors are paid a commission for each hot dog sold. The commission and other variable costs associated with selling the hot dogs is $.30 each. The fixed costs associated with operating the business are $110,000 a year. Last year the company sold 260,000 hot dogs at baseball games.

The management of Pro-Dog is not pleased with the level of sales and profit last season. An alternative being considered is to lower the price of hot dogs to $1.10. During the upcoming season management expects the food costs to increase 10 percent, but all other costs are expected to remain the same.

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REQUIRED a. Compute the price indifference point for the new price using last year's cost data. b. Compute the price indifference point using the expected cost changes in the analysis. c. If the price is lowered to $1.10 and sales increase to 320,000 units, what is the impact on profits?