Buzz Clothing Co., once the favorite of local teens, is considering lowering prices on all items it sells in an effort to win them back after several years of sales declines. BCC's total sales were

$3

million last year, but they have been declining in the face of a weak economy and an intensively competitive retail environment. Price reductions are often effective in increasing sales, but marketers need to analyze how much sales must go up before a price reduction pays off and increases revenue enough to make the it worth doing. Assuming BCC's gross profit margin is

55

percent and cost of goods sold represents the only variable cost, by how much must sales increase to maintain the same gross profit margin in terms of absolute dollars if BCC lowers prices by

5

percent? Hint: The Financial Analysis of Marketing Tactics section in Appendix 3 of your textbook includes information to help you analyze a decision to decrease price.