Purpose: Apply the concepts of cost-volume-profit to impact profitability KSAs: Understand processes and concepts of cost-volume-profit Points: 10 Admin: None Discussion Initial Response Due by Wednesday: 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 decrease the price by 10% per unit and maintain our advertising budget, I think we will increase sales volume to 150% of our current sales 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 10%, we should be able to increase sales volume to 125% of our current sales 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. "Hint: Set up Contribution Margin Income Statement to calculate operating income. Part 2: Which strategy is best and why? Discussion Response Due by Saturday: Respond to another student. AnticipatedsalespriceperunitVariablecostperunitAnticipatedvolume(inunits)ProductioncostsAnticipatedadvertisingUnitContributionMarginContributionMarginContributionMarginRatioOperatingIncomeCurrent$80.00$45.001,000,000units$20,000,000.00$10,000,000.00????Shohreh?????????Antonio