A convenience store buys whole milk for $2.17 per gallon and sells it for $2.99 per gallon.

Question:

A convenience store buys whole milk for $2.17 per gallon and sells it for $2.99 per gallon. It sells an average of 150 gallons per day. By tracking past changes in sales of whole milk with changes in sales of other grocery products, the manager has discovered that each one-gallon increase in the sales of whole milk is associated with a $1.00 increase in the sales of other grocery products. Every $1.00 increase in the sales of other grocery products yields a contribution margin of $0.38.
The manager is now considering a promotion where the price of whole milk will be lowered to $2.59 per gallon. If this past relationship between sales of whole milk and sales of other grocery products holds, by how many gallons must whole milk sales increase in order for the store to break even on this price promotion? Show your work.
Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question
Question Posted: