Example 6-2 You are a cost accountant at Starbucks. Profitability has been declining and you have been tasked with figuring out how to increase profitability. You have identified the following options: 1. Increase the per-unit price from $2.50 per cup to $4.00 per cup. How many units do you need to sell to earn a profit of $21,000? What is your Target Sales (S)? Is this a good move? 2. Increase quality of product by changing suppliers; this results in increased Variable Costs from $1.00 per unit to $1.20 per unit. However, sales volume is expected to increase by 20% as a result of this higher quality (sales volume was previously 15,000 units). What is the new Target Price necessary to maintain a Target Profit of $21,000? 3. Alternatively, the company is considering a promotion: Buy 9 Cups, Get One Free. The Advertising Expense for this promotion will increase fixed costs by $2,500 per month. How many units do you need to sell to earn a profit of $21,000? What is your Target Sales ($)? 6-6 Example 6-2 You are a cost accountant at Starbucks. Profitability has been declining and you have been tasked with figuring out how to increase profitability. You have identified the following options: 1. Increase the per-unit price from $2.50 per cup to $4.00 per cup. How many units do you need to sell to earn a profit of $21,000? What is your Target Sales (S)? Is this a good move? 2. Increase quality of product by changing suppliers; this results in increased Variable Costs from $1.00 per unit to $1.20 per unit. However, sales volume is expected to increase by 20% as a result of this higher quality (sales volume was previously 15,000 units). What is the new Target Price necessary to maintain a Target Profit of $21,000? 3. Alternatively, the company is considering a promotion: Buy 9 Cups, Get One Free. The Advertising Expense for this promotion will increase fixed costs by $2,500 per month. How many units do you need to sell to earn a profit of $21,000? What is your Target Sales ($)? 6-6