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 where as rash away also included a compound that eliminated the rash.
The price and promotion alternatives recommended for the two products by their respective brand mangers included the possibility of using additional promotion or a price reduction to stimulate sales volume. A volume, price, and cost summery for the products is as follows.
Rash Away Red Away
Unit Price $2.00 $1.00
Unit Variable Costs $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 an incremental $150,000 in advertising.
B-How many additional sales dollars must be produced to cover each $1.00 of incremental advertising for Rash-Away? For Red Away?