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.

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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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