08 May HOW MANY ADDITIONAL SALES DOLLARS MUST BE PRODUCED TO COVER EACH $1.00 OF INCREMENTAL ADVERTISING FOR RASH AWAY?
Marketing StrategiesThe 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 a 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 awayunit price $2 $1unit variable costs $1.40 $0.25unit contribution $0.60 $0.75unit volume 1 000 000 units 1 500 000 unitsBoth 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?
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