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 $0.25 price reduction in Bison Bites have on Salty Pawzs break-even point? Assume that the product sales mix remains unchanged.

Income Statement
Based on 14,000 units sold
	Current Price	Reduced Price
INCOME:
Party Pooch
Chicken Cuties
Bison Bites
Lamb Lovies
TOTAL INCOME:
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	$-	$-

What effect will a $0.25 price reduction in Bison Bites have on Salty Pawzs break-even point? Assume that the product sales mix changes as shown in Table 1.

Income Statement					Table 1.
Based on 14,000 units sold					Party Pooch		45%
	Current Price	Price & Mix Change	Change		Chicken Cuties		13%
INCOME:					Bison Bites		10%
Party Pooch					Lamb Lovies		32%
Chicken Cuties
Bison Bites
Lamb Lovies
TOTAL INCOME:
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.

What effect will this price reduction have on Salty Pawzs 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 Wandas break-even 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 if the bison product price is reduced, assuming customers buy more Bison Bites and fewer Chicken Cuties.

Illustrate the break-even points calculations.

Predict the effects of the new prices based on the break-even point calculations