The manager of a chain of electronics stores is considering running a sale on a Lexmark printer model that contains many popular features. The store buys these printers for $60 apiece and, at the regular price of $160, has been selling 48 of them per week. The manager is considering discounting the printer so that it sells for $120. Although this promotion would involve incremental advertising costs of $3,300, the manager has observed that each Lexmark printer sold generates increased sales of Lexmark ink cartridges (the store’s average contribution margin for Lexmark ink cartridges is 64 percent). A regression analysis on this was carried out by the chain’s research department. The analysis used sales of Lexmark ink cartridges (in dollars per week) as the DV. The sales level of Lexmark printers (in units per week) was an IV, and the coefficient of this IV equaled 18.750.
(a) Given this information, calculate the breakeven sales level for this promotional discount. Show your work.
(b) Give an example of a product interrelationship that the manager has failed to consider that might make this breakeven level overly optimistic