The following information is available for ABBA Corporation for last month:

Sales (12,000 units x $100 per unit)

$1,200,000

Variable expense (12,000 units x $75 per unit)

$900,000

Contribution margin

$300.000

Fixed Expenses

$170,000

Operating Income

$130.000

The company has no beginning or ending inventories. ABBA'S product is in its growth stage and is positioned as an

affordable quality product. Currently, competitor's prices range from $90-$110 per unit.

Required:

a) Calculate the company's break-even point in units.

b) The marketing manager believes she can increase sales by 5,000 units by implementing one of these two options:

Option 1:

Increasing advertising, a fixed cost, by $30,000, or

Option 2:

Decreasing sales price per unit to $95.

i

Calculate the total operating income under each option above (1) and (2).

Explain which option would you recommend from both a financial and a strategic perspective.