Lore Inc has finished a new virtual reality game, Sailor's Revenge. Management is now considering its marketing strategies. The table below is available to help with the decision. Two managers, Shohreh Johnson, had the following discussion of ways to increase the profitability of this new offering: Antonio: I think we need to think of some way to increase our profitability. Do you have any ideas? Shohreh: Well, I think the best strategy would be to become aggressive on price. If we drop the price from $80 to $70 per unit and maintain our advertising budget at $10,000,000, I think we will generate total sales of 2,000,000 units. This would be twice our current unit sales expectations. Antonio: I think that is the wrong way to go. You are giving up too much on price. Instead, I think we need to follow an aggressive advertising strategy. If we increase our advertising by $7,000,000 to a total of $17,000,000, we should be able to increase sales volume to 1,400,000 units without any change in price. Part 1: Calculate (1) unit contribution margin, (2) contribution margin, (3) contribution margin ratio, and (4) operating income for all three options.

Which type of income statements, Contribution Format or Traditional Format should be used to identify relevant costs? Please provide explanation for your answer. Then provide an example including two income statements based on absorption and variable costing, respectively, to support your explanation.

Discuss the components of the Contribution Margin Income Statement, how does management use this in the decision making process?

Please explain what is meant by the contribution margin.  Also, please provide an example of how the contribution margin ratio is calculated and how the unit contribution margin is calculated.