Healthy Spring Water Company
Instructor’s Note
1. What is the maximum sales loss (in % and units) that Healthy Spring could tolerate before a
20% price increase would fail to make a positive contribution to its profitability? (That is,
what is the basic breakeven sales change?)
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2. By how much would Healthy Spring’s contribution increase if its sales declined by 15%
following the price increase?
( )
( ) 200,3$16$2000%25%15
$sales sales
=−−−
−
units
newCM
E
B
3. In order for Healthy Spring to reposition itself as a premium water, management believes that
it will have to upgrade the packaging of its product. The company will deliver the water in
glass rather than plastic bottles and the bottles will be “safety sealed” to insure their
cleanliness until the covering is removed in the customer’s home. These changes will add
$1.00 per bottle to the variable cost of sales.
4. To reposition its water as a premium product, Healthy Spring will require an increase in its
advertising and promotion budget of $900 daily. What is the maximum sales loss that
Healthy Spring could tolerate before a 20% price increase would fail to increase its net
profit? (That is, what is the breakeven sales change, including the incremental fixed cost of
the advertising campaign?)
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