The group product manager for ointments at a 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 to 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:
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.
Question - How many additional sales dollars must be produced to cover each $1.00 of incremental advertising for Rash-Away? For Red-Away? Show Calculations: