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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?

Accounting (Text Only)
Accounting (Text Only)
26th Edition
ISBN:9781285743615
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter21: Cost Behavior And Cost-volume-profit Analysis
Section: Chapter Questions
Problem 21.3CP: Break-even analysis Somerset Inc. has finished a new video game, Snowboard Challenge. Management is...
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"what strategy is best: do nothing? follow the advice of Dan Gillespie? or follow haley Chipana'a 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?
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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