Case 11-3 Break-even analysis Aquarius Games Inc. has finished a new video game, Triathlon Challenge. Management is now considering its marketing strategies. The following information is available: Anticipated sales price per unit $75 Variable cost per unit* $45 Anticipated sales volume in units Production costs 800,000 $9,000,000 Anticipated advertising costs $15,000,000 *The video game, packaging, and copying costs. Two managers, Haley Chipana and Dan Gillespie, had the following discussion of ways to increase the profitability of this new offering: Haley: I think we need to think of some way to increase our profitability. Do you have any ideas? Dan: Well, I think the best strategy would be to become aggressive on price. Haley: How aggressive? Dan: If we drop the price to $60 per unit and maintain our advertising budget at $15,000,000, I think we will generate sales of 2,000,000 units. Haley: I think that's the wrong way to go. You're giving too much up on price. Instead, I think we need to follow an aggressive advertising strategy. Dan: How aggressive? Haley: If we increase our advertising to a total of $20,000,000, we should be able to increase sales volume to 1,200,000 units without any change in price. Dan: I don't think that's reasonable. We'll never cover the increased advertising costs. Which strategy is best: Do nothing? Follow the advice of Dan Gillespie? Or follow Haley Chipana's strategy?
Case 11-3 Break-even analysis Aquarius Games Inc. has finished a new video game, Triathlon Challenge. Management is now considering its marketing strategies. The following information is available: Anticipated sales price per unit $75 Variable cost per unit* $45 Anticipated sales volume in units Production costs 800,000 $9,000,000 Anticipated advertising costs $15,000,000 *The video game, packaging, and copying costs. Two managers, Haley Chipana and Dan Gillespie, had the following discussion of ways to increase the profitability of this new offering: Haley: I think we need to think of some way to increase our profitability. Do you have any ideas? Dan: Well, I think the best strategy would be to become aggressive on price. Haley: How aggressive? Dan: If we drop the price to $60 per unit and maintain our advertising budget at $15,000,000, I think we will generate sales of 2,000,000 units. Haley: I think that's the wrong way to go. You're giving too much up on price. Instead, I think we need to follow an aggressive advertising strategy. Dan: How aggressive? Haley: If we increase our advertising to a total of $20,000,000, we should be able to increase sales volume to 1,200,000 units without any change in price. Dan: I don't think that's reasonable. We'll never cover the increased advertising costs. Which strategy is best: Do nothing? Follow the advice of Dan Gillespie? Or follow Haley Chipana's strategy?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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The text and question is below attactched as a photo: after reading the text the question is
"what strategy is best: do nothing? follow the advice of Dan Gillespie? or follow haley Chipana'a strategy?"
Transcribed Image Text:Case 11-3 Break-even analysis
Aquarius Games Inc. has finished a new video game, Triathlon Challenge. Management is
now considering its marketing strategies. The following information is available:
Anticipated sales price per unit
$75
Variable cost per unit*
$45
Anticipated sales volume in units
Production costs
800,000
$9,000,000
Anticipated advertising costs
$15,000,000
*The video game, packaging, and copying costs.
Two managers, Haley Chipana and Dan Gillespie, had the following discussion of ways
to increase the profitability of this new offering:
Haley: I think we need to think of some way to increase our profitability. Do you have any ideas?
Dan: Well, I think the best strategy would be to become aggressive on price.
Haley: How aggressive?
Dan: If we drop the price to $60 per unit and maintain our advertising budget at $15,000,000, I
think we will generate sales of 2,000,000 units.
Haley: I think that's the wrong way to go. You're giving too much up on price. Instead, I think
we need to follow an aggressive advertising strategy.
Dan: How aggressive?
Haley: If we increase our advertising to a total of $20,000,000, we should be able to increase
sales volume to 1,200,000 units without any change in price.
Dan: I don't think that's reasonable. We'll never cover the increased advertising costs.
Which strategy is best: Do nothing? Follow the advice of Dan Gillespie? Or follow
Haley Chipana's strategy?
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