You're a project mamanger trying to decide between two alternatives in hopes of increasing the sales volume of their snack line. Sales have decreased between the two options in the past two years. The two alternative being considered include a price decrease or an increase in the promotional spending. Below is a summary of last years volume, price, and costs for the two products.
FiberBar / FiberBar-w/Fruit
Unit price $1.098 / $1.296
Unit Variable Cost 0.523 / 0.877
Unit Contribution 0.575 / 0.419
Unit Volume 1,500,000 / 1,000,000
The alternatives being considered would call for a 10% reduction in the price of each unit, or an increase in advertising by $150,000.
a. What increase in unit and dollars will be needed to recoup the additional advertising expenditures for FiberBar and FiberBar w/Fruit?
b. What Increase in sales dollars must be produced to cover each $1.00 of additional advertising expense?
c. What increase in unit and dollar sales will be necessary to maintain the level of net marketing contribution if the price of each product is reduced by 10%?