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TexasFluff is a producer of pillows. Suppose TexasFluff currently sells 7 , 5 0 0 pillows a month at a price of $ 1 0
TexasFluff is a producer of pillows. Suppose TexasFluff currently sells pillows a month at a price of $ per pillow. Variable Costs are $ per pillow, and nonincremental fixed costs are $
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 their pillow as a luxury product, justifying a higher price. If successful, TexasFluff believes that it could charge more per pillow than it does now.
Please answer the following questions and be sure to show your work.
a points Complete the incremental breakeven analysis for the proposed price increase. In other words, what is the lowest sales volume that TexasFluff could tolerate before a increase would fail to make a positive contribution to its profitability? Express your answer in unit sales.
b points What would TexasFluffs contribution be if its sales declined by only following the price increase? Please state your answer in terms of dollars.
c points In order for TexasFluff to reposition as a luxury pillow provider, management believes that it will have to upgrade the fill of the pillows from synthetic material to real goose down. This change will add $ per pillow to the variable cost of sales. Now what is the breakeven sales volume for maintaining profitability? Express your answer in unit sales.
d points To reposition as a luxury product, TexasFluff also needs to increase its monthly advertising and promotion budget by $ in addition to the increase in variable cost mentioned in part c Now what is the breakeven sales volume for maintaining profitability? Express your answer in unit sales.
e points In a few sentences, explain a few pros and cons of attempting to use a price increase to raise profits.
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