Problem: 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 cost $1.40 $0.25
Unit contribution $0.60 $0.75
Unit volume 1,000,000 1,500,000
Both brand managers included a recommendation to either reduce price by 10 percent or invest and additional $150,000 in advertising.
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%?