GoGo Juice is a combination gas station and convenience storelocated at a busy intersection. Recently, a national chain opened asimilar store only a block away; consequently, sales have decreasedfor GoGo. In an effort to reclaim lost sales, GoGo has implementeda promotional effort; for every $10 purchase at GoGo, the customerreceives a $1 coupon that can be redeemed toward the purchase ofgasoline. The average gasoline customer purchases 15 gallons ofgasoline at $2.50 per gallon. The results of an average month,prior to this coupon promotion, are shown below.

Not included in the information presented below is the monthlycost of printing the coupons, which is estimated to be $500.Coupons are issued on the basis of total purchases regardless ofwhether the purchases are paid in cash or paid by redeemingcoupons. Assume that coupons are distributed to customers for 75percent of the total sales. Also assume that all couponsdistributed are used to purchase gasoline.

	Sales			Cost of Sales (per unit or % of retail)
Gasoline	$	100,000		$	1.875	per gallon
Food and beverages		60,000			60	%
Other products		40,000			50	%
							Other Costs
Labor—station attendants							$	10,000
Labor—supervision								2,500
Rent, power, supplies, andother								40,000
Depreciation (pumps,computers, counters, fixtures, and building)								7,500

Rreq:

2. Calculate the breakeven sales (in dollars) for GoGoJuice if the promotional effort is implemented. Assume that theproduct mix remains constant. Use the weighted-average contributionmargin ratio approach to generate your answer. (Hint:Sales mix for this purpose is defined on the basis of relativesales dollars, not units.)

3. Based on the assumed sales mix (determined on thebasis of relative sales dollars, not units), determine thecomposition of total breakeven sales dollars across the threeproduct lines: gas; food and beverages; and otherproducts.

4. Disregarding your responses to requirements 1 and 2,assume the weighted-average contribution margin ratio, afterimplementation of the coupon program, is 35 percent. Calculate thebefore tax profit (loss) for GoGo Juice, assuming sales increase 20percent due to the new program. Assume that the sales mix in termsof relative sales dollars remains constant.

5. GoGo Juice is considering using sensitivity analysisin combination with cost-volume-profit (CVP) analysis. Discuss thisplan. Include in your discussion at least three factors that makesensitivity analysis prevalent in decision making.

6. Provide a brief description of the methods that canbe used to deal with uncertainty.