## Question

###### Case 11-3 Break-even analysis Aquarius Games Inc. has finished a new video game, Triathlon Challenge. Management...

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 Variable cost per unit* Anticipated sales volume in units Production costs Anticipated advertising costs "The video game, packaging, and copying costs. $75 $45 800,000 $9,000,000 $15,000,000 Two managers, Haley Chipana and Dan Gillespie, had the following discussion of ways to increase the profitability of this new offering:

Do you have any ideas at $15,000 Haley. I think we need to think of some way to increase our profitability. Do you have a 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 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. 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 in 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?

## Answers

Particulars Selling Price per unit Variable expenses per unit Contribution per unit Unit Sales Total Contribution (-) Fixed expenses Production costs Advertising costs Net Operating Income Dan Gillespie's Haley Chipana's Do Nothing advice Strategy 75$ 60 $ -45 $ -45 $ -45 30 $ 15 $ 30 800000 2000000 1200000 2,40,00,000 $ 3,00,00,000 $ 3,60,00,000 $ $ 90,00,000 $ 1,50,00,000 $ $ 90,00,000 1,50,00,000 60,00,000 $ $ $ 90,00,000 2,00,00,000 70,00,000 Conclusion The best strategy is- Haley Chipana's strategy of maintaing same prices and increasing the sales volume through increase in advertising budget, since the net operating income is maximum under this strategy.

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