Question 2: Should you reduce the price or increase advertising? The selling price is $30/unit, variable costs are $20/unit, and fixed costs are $3,000 in total. Sales volume decreased to 200 units because of a recession. You are considering two options to stimulate sales: (1) Reduce the price to $28/unit. This will increase sales volume by 20%. (2) Buy additional advertising for $300 and keep the original price. This will increase sales volume by 20%. Use the gross approach to decide whether you should do nothing the status quo), reduce the price, or increase advertising. status quo I (1) reduce the price (2) increase advertising Volume in units Revenue $ Variable costs $ Contribution margin margin $ Fixed costs $ Profit* * enter losses as a negative number: e.g., a loss of $500 should be entered as -500, not as (500) or ($500). What should you do? Do nothing Increase advertising Reduce the price