Lore Inc has finished a new virtual reality game, Sailor's Revenge. Management is now considering its marketing strategies. The table below is available to help with the decision. Two managers, Shohreh Johnson, had the following discussion of ways to increase the profitability of this new offering:

Antonio: I think we need to think of some way to increase our profitability. Do you have any ideas?

Shohreh: Well, I think the best strategy would be to become aggressive on price.

Antonio: How aggressive?

Shohreh: If we drop the price from $80 to $70 per unit and maintain our advertising budget at $15,000,000, I think we will generate total sales of 2,000,000 units. This would be twice our current unit sales expectations.

Antonio: I think that is the wrong way to go. You are giving up too much on price. Instead, I think we need to follow an aggressive advertising strategy.

Shohreh: How aggressive?

Antonio: If we increase our advertising by $5,000,000 to a total of $20,000,000, we should be able to increase sales volume to 1,400,000 units without any change in price.

Shohreh: I don't think that is reasonable. We will never cover the increased advertising costs.

Part 1: Calculate (1) unit contribution margin, (2) contribution margin, (3) contribution margin ratio, and (4) operating income for all three options.

Part 2: Which strategy is best and why?

	Current	Shohreh	Antonio
Anticipated sales price per unit	$80.00	?	?
Variable cost per unit	$35.00	?	?
Anticipated volume (in units)	1,000,000 units	?	?
Production costs	$20,000,000.00	?	?
Anticipated advertising	$ 15,000,000.00	?	?
Unit Contribution Margin	?	?	?
Contribution Margin	?	?	?
Contribution Margin Ratio	?	?	?
Operating Income	?	?	?