10. Mr. Jim Stewart was examining a pricing decision on two of his company's household products. The regular size RS2 product sold to retailers at a price of $36 per 24-can case and was retailed at a price of $1.99 per can while the wholesale and retail price of the large-size RS2 was $46 and $3.99. Mr. Stewart's largest competitor sold Easi, a one-sized product similar to RS2 but of slightly lower quality and brand appeal. packaged in a can as big as RS2 Large at the same prices of RS2 Regular. Mr. Stewart's salespeople had been pressuring him to lower the price of RS2 Large to the level of RS2 Regular to compete with lower priced Easi. He gathered the following data to help him decide what to do. a) Raw material costs per case were $9.60 for the regular RS2 and $14.80 for the large size. Variable manufacturing costs per case were $5.05 for RS2 Regular and $6.85 for RS2 Large. There was talk that raw materials might increase by eight per cent next year, but Mr. Stewart thought that there was only a 50-50 chance that this would occur. b) Manufacturing fixed costs were $600,000, delivery fixed costs $75,000, selling fixed costs $350,000, advertising fixed costs $489,000, general and administrative overhead $300,000, depreciation $60,000. These costs were expected to rise on average five per cent next year and would not change with a package size change. c) Last year RS2 Regular sold 75,000 cases and RS2 Large 42,000 cases. RS2 total market share of its category last year was 42 per cent. Easi had 28 per cent share. The category was expected to grow 2.8 per cent in total next year. d) Variable marketing costs per case were $2 delivery and $2.40 selling. These costs were expected to rise nine per cent next year. Mr. Stewart's sales manager argued that total RS2 sales would increase, maybe as much as 40 per cent over last year, if the new price was implemented. He argued that the RS2 Regular size would still be stocked by convenience stores and smaller grocery outlets instead of the larger size and that the current price could be maintained with no more than a one-third drop in volume of RS2 Regular. Mr. Stewart thought the Regular drop would be more likely one-half of last year's volume and that Large would only double over last year. f) There was a rumor in the trade that Easi, expecting a raw materials cost increase of eight per cent and no major moves by RS2, would be increasing its price by nine per cent next year. Other concerns such as product image with the customer, plant capacity, and retailer reaction were being looked at concurrently by his analysts, but in the meantime, Mr. Stewart thought he would begin his analysis of the pricing proposal by pushing some of the numbers around that he already had. What advice would you give him