Wanda has analyzed her sales figures and decided that she is charging too much for Bison Bites because they only represent 5% of her total income. She has a good profit margin on them, so she believes she can reduce the price by $0.25 per biscuit and still make this product profitable. She comes to you with this proposal as well as a few related questions. She has provided you with income and expense information to help you figure this out and tell her what she should do. What effect will a $025 price reduction in Bison Bites have on Salty Pawz's breakeven point? Assume that the product sales mix remains unchanged. Income Statement Based on 14,000 units sold INCOME: Party Pooch Chicken Cuties Bison Bites Lamb Lovies TOTAL INCOME: COST OF GOODS SOLD: Party Pooch Chicken CutiesBison Bites Lamb Lovies Total cost of sales GROSS PROFIT OPERATING EXPENSES: Rent Electricity \fTOTAL EXPENSES NET INCOME BEFORE TAXES Vhat effect will a $025 price reduction in Bison Bites have on Salty Pawz's breakeven point? .ssume that the product sales mix changes as shown in Table 1. Income Statement Based on 14,000 units sold Price & Mix Change Current Price INCOME: Party Pooch Chicken Cuties Bison Bites Lamb Lovies TOTAL INCOME: r-Ar-w- n. \"ARR\" Current Price Price & MIX Change Chicken Change COST OF GOODS SOLD: Party Pooch Chicken Cuties Bison Bites Lamb Lovies Total cost of sales GROSS PROFIT OPERATING EXPENSES Rent Electricity Telephone Water / Sewer Internet Website Salaries Owner's Draw Office Supplies Loan Payment Insurance Other TOTAL EXPENSES NET INCOME BEFORE TAXES Help Wanda answer the following questions.Help Wanda answer the following questions. What effect will this price reduction have on Salty Pawz's break-even point? Assume that the product sales mix remains unchanged. (Tip: Remember that because Bison Bites are included in the Party Pooch, the price change on Bison Bites would also affect the sales price of the Party Pooch.) If Wanda reduces the price on the Bison Bites to $1.50, she believes it will cause customers buying Chicken Cuties to switch to the Bison Bites. The revised product mix is provided in the table below. What is the effect on Wanda's breakeven point if she reduces the bison product price and customers buy more Bison Bites and fewer Chicken Cuties? (Tip: Remember that because Bison Bites are included in the Party Pooch, the price change on Bison Bites would also affect the sales price of the Party Pooch.) In addition to the numbers, provide Wanda a written explanation of the changes to her break-even point under both of the scenarios presented. Calculate the break-even point for the new prices if the product mix remians unchanged. Calculate the break-even point ifthe bison product price is reduced, assuming customers buy more Bison Bites and fewer Chicken Cuties. a IS e e ec on an as rea -even pom I s e re uces e Ison pro uc price an customers buy more Bison Bites and fewer Chicken Cuties? (Tip: Remember that because Bison Bites are included in the Party Pooch, the price change on Bison Bites would also affect the sales price of the Party Pooch.) In addition to the numbers, provide Wanda a written explanation of the changes to her breakeven point under both of the scenarios presented. Calculate the breakeven point for the new prices if the product mix remians unchanged. Calculate the breakeven point ifthe bison product price is reduced, assuming customers buy more Bison Bites and fewer Chicken Cuties. Illustrate the breakeven points calculations. Predict the effects of the new prices based on the break-even point calculations Salty Pawz J A Case Studyr in Businesd Salty Pawz Marketing: Products: Product. Wanda sells three varieties of dog treats: Chicken Cuties, Bison Bites and Lamb Lovies. Each treat comes in a plastic pouch containing 12 treats. She has the following assortments available: Party Pooch = 4 each of 3 avors Chicken Cutie s= 12 Chicken Bison Bites = 12 Bison Lamb Lovies = 12 Lamb 0000 SaltyPawz Commitment to Healthy Ibgs Since the very beginning, Wanda has been committed to providing a healthy alternative to mass produced dog treats. Consequently, she has been very careful about sourcing her ingredients. The chicken she uses in the Chicken Cuties is from free-range chickens that are fed no artificial growth hormones or antibiotics. It took her a while, but she was able to find several ranchers who raise lamb and bison in an environment where they are fed only non-GMO grains. She does not add preservatives, dyes or fillers to her treats. Pricin gi Wanda has priced her treats on what would be considered the \"high\" end of the market. She detemnined her price based on her costs and what she wants to earn every month. Although she pays attention to what other businesses are charging, she has never conducted any research to detemnine how she stacks up against the competition. She is selling as many treats as she and her friends can make, so price is not something she is concerned about at this time. Place: Salty Pawz products are sold via the Internet and all of Wanda's business is conducted through some form of e-commerce. She has her treats listed on www.etsy.com where they are one of a large variety of treats available. Her brother-in-law recently latmched her website using Webley and she is still getting used to managing the site. In reality, when she gets a \"sale\" through her web site she is sending the customers to etsy to complete the purchase. When she told Jim this he asked her \"aren't you afraid that when your customers get to etsy they will find someone else's treats and buy them instead?\" Wanda just scratched her head. Prom otion: Salty Pawz does not have marketing materials, does no promotions or advertising. Wanda thinks it might be a good idea, but currently she relies on word of mouth to advertise her business. She Authored by Linda Williams and Lumen Learning. CC-BY. 7 V Salty Pawz Financial Information: Sales + Revenue: For the last 6 months, Wanda's sales have broken down as shown below. She has also provided you with her cost for each variety of treat. Weighted Profit Profit Products/Services % of Sales Sales Price COGS Contribution Margin Margin Party Pooch 45% 20.00 10.40 9.60 18.00% 21.60% Chicken Cuties 18% 15.00 7.80 7.20 48.00% 8.64% Bison Bites 5% 21.00 10.80 10.20 48.57% 2.43% Lamb Lovies 32% 24.00 12.60 11.40 47.50% 15.20% Average profit (Must equal 100%) 100% margin: 47.87% Sales Price COGS Chicken Cuties 1.25 0.65 Bison Bites 1.75 0.90 Lamb Lov 2.00 1.05 Authored by Linda Williams and Lumen Learning. CC-BY. Salty Pawz A Case Study in Business Cost of Goods Sold. Wanda's COGS include the packaging, labeling, the ingredients, and the time it takes to make the treats. Since she can bake them in big batches, her labor cost per unit is very low. When Wanda ships her products, she charges just what it costs her. Shipping is done on a cost recovery basis and currently she doesn't consider it in her income/expenses. Monthly Expenses. Currently Wanda's monthly expenses are: Expenses Cost in USD Rent 0.00 Electricity 0.00 Telephone 100.00 Water / Sewer ).00 Internet 60.00 Website 175.00 Salaries 0.00 Owner's Draw 1000.00 Office Supplies 50.00 Loan Payment 0.00 Insurance 85.00 Other 0.00 Total Overhead $1,470.00