The brand manager for Ivory soap manufactured by Procter Ga

The brand manager for Ivory soap, manufactured by Procter & Gamble, was trying to increase the brand\'s profits which had recently been declining. The assistant brand manager had developed two alternatives to stimulate sales volume: Option A - increase advertising by $450,000 OPTION B - lower price by 15%. Ivory is typically sold in multipacks that contain 3, 4 or 10 bars. Figures below represent the per- bar prices and costs. Unit price Unit variable costs Unit contribution Unit Volume Ivory (per bar) $0.32 0.18 0.14 18,500,000 units a. If the brand manager chooses Option A, what absolute increase in unit sales will be necessary to recoup the incremental increase in advertising expenditures for Ivory? b. What absolute increase in unit sales will be necessary to maintain current profit levels if the price is reduced 15%? C. Which option should the brand manager choose? Why?

Solution

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Part a. SP 0.32 VC 0.18 Cont Margin 0.14 450000/0.14 Unit Increase 3214286 Part b. Existing New SP 0.32 0.272 VC 0.18 0.18 Cont Margin 0.14 0.092 Total Profit E13*18500000 2590000 2590000/0.092 Total Units Needed 28152174 Less:Existing 18500000 Unit Increase 9652174 Part c. Should be chosen option A since lesser increased units is giving same profit