Problem 1:

The Vice President of Marketing of XYZ Manufacturing was considering a change in advertising or price for two brands. The volume, pricing, and cost summary for each product are provided below:

	Product X	Product Y
Manufacturing Price	5.00	4.00
Unit Variable Cost	2.50	1.75
Fixed Marketing Costs	$250,000	$400,000
Fixed Manufacturing Cost	$400,000	$600,000
Unit Sales Volume	1,000,000	1,750,000
Total Market Sales	5,000,000	10,000,000
Market Growth Rate	4%	10%

The brand managers for Product X and Product Y have requested to either reduce price by 10 percent or invest an additional $200,000 in advertising.

As V.P. of Marketing how would you respond to each request?

The incremental results are not promising as all numbers trend in the wrong direction. For Product X, a 10% decrease in price results in a 2% drop in MROI, while an increase in advertising expense would be

Due to price competition, a price of $4.00 (I'm assuming Manufacturing Price is Original Price) is now being proposed for the product X. How would this new price impact your earlier decision regarding pricing and advertising?