The management forecasts that the advertisement would

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2. Firm X is about to launch a line of new athletic shoes and sets aside $300,000 for a new advertisement. The firm hired an advertisement agency and paid $50,000 and reserve space in a magazine, Road Runner. The price for the ad space is $250,000. If the firm cancelsthe reservation, it has to pay a cancellation fee of $50,000. The management forecasts that the advertisement would generate sales of 20,000 units. The unit contribution margin would be $20.

Recently, however, a major competitor launched a new line of athletic shoes. The firm now revises sales forecast downward to 14,000 units, with the unit contribution margin remaining the same. Should the firm cancel the launch?

Reference no: EM13316395

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