The group product manager for ointments at american

Reference no: EM13576401

The group product manager for ointments at American Therapeutic Corporations 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 products follows:

Rash-Away
- Unit price: $2.00
- Unit Variable Costs: $1.40
- Unit contribution: $0.60
- Unit Volume: 1,000,000 units
Red-Away
- Unit price: $1.00
- Unit Variable Costs: $0.25
- Unit contribution: $0.75
- Unit volume: 1,500,000 units

Both brand managers included a recommendation to either reduce price by 10% or invest an incremental $150,000 in advertising.

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%?

Reference no: EM13576401

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