Reviewing price and promotion alternatives for two products

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Reference no: EM132261245

The group product manager for ointments at American Therapeutic Corporation was reviewing price and promotion alternatives for two products: Rash-Away and Red-Away. Both products were designed to reduce skin irritation, but Red-Away was primarily a cosmetic treatment whereas Rash-Away also included a compound that eliminated the rash. The price and promotion alternatives recommended for the two products by their respective brand managers included the possibility of using additional promotion or a price reduction to stimulate sales volume. A volume, price, and cost summary for the two products follows: Rash-Away Red-Away Unit price $ 2.00 $ 1.00 Unit variable costs 1.40 0.25 Unit contribution $ 0.60 $ 0.75 Unit volume 1,000,000 units 1,500,000 units Both brand managers included a recommendation to either reduce price by 10 percent or invest an incremental $150,000 in advertising. Given the above, compute and answer the following: a. What absolute increase in unit sales and dollar sales will be necessary to recoup the incremental increase in advertising expenditures for Rash-Away? For Red-Away? b. How many additional sales dollars must be produced to cover each $ 1.00 of incremental advertising for Rash-Away? For Red-Away? c. What absolute increase in unit sales and dollar sales will be necessary to maintain the level of total contribution dollars if the price of each product is reduced by 10 percent?

Reference no: EM132261245

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