ABC Company sells bottled water for offices and homes. The price of the water is $20 per 10-gallon bottle and the company currently sells 2,000 bottles per day. Following is the companys income and costs on a daily basis.

Sales revenue $40,000

Incremental variable cost $16,000

Non-incremental fixed cost $20,000

[Note: you can assume that variable costs are constant so that the average of them is also the variable cost relevant for a change in sales.]

The company is enjoying stable demand with its current pricing, but management is looking for ways to increase profitability. One suggestion is that the company reposition its water as a premium product, justifying a higher price. If successful, the company believes that it could charge 20% more for its water than it does now. 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?

2. By how much would Healthy Springs contribution change (increase or decrease) if its sales declined by 15% following the price increase?