Exercise 12A-7 Customer Latitude and Pricing [LO12-9]

The postal service of St. Vincent, an island in the West Indies, obtains a significant portion of its revenues from sales of special souvenir sheets to stamp collectors. The postal service purchases the souvenir sheets from a supplier for $0.80 each. St. Vincent has been selling the souvenir sheets for $8.00 each and ordinarily sells about 80,000 units. To test the market, the postal service recently priced a new souvenir sheet at $7.00 and sales increased to 93,600 units.

Required:

1. What total contribution margin did the postal service earn when it sold 80,000 sheets at a price of $8.00 each?

2. By what percentage did the St. Vincent post office decrease its selling price? By what percentage did unit sales increase? (Round your answers to 1 decimal place.)

3. What total contribution margin did the postal service earn when it sold 93,600 sheets at a price of $7.00 each?

4. What was the postal services increase (decrease) in total contribution margin going from the higher price of $8.00 to the lower price of $7.00?

5. How many sheets would the postal service have to sell at the lower price of $7.00 to equal the total contribution margin earned at the higher price of $8.00? (Round your answer to the nearest whole number.)

6. What percentage increase in the number of sheets sold at $7.00 must be achieved to equal the total contribution margin earned at the higher price of $8.00? (Round your intermediate calculations to the nearest whole number. Round final answer to 1 decimal place.)