The group president for Sky Corporation was reviewing price and promotion alternatives for their Blue-Sky, which has struggled to grow market share. The price and promotion alternatives recommended for the product by the brand manager include the possibility of using additional promotion or a price reduction to stimulate sales volume.

Unit Price 72

Unit Variable Costs 7

Unit Volume 1,200,000 units

Current Sales = 1,200,000 x Price

Current Contribution = 1,200,000 x CMU

The brand manager recommended to either reduce price by 5 percent or invest $300,000 in advertising.

a. What increase in unit sales and dollar sales will be necessary to recoup the $300,000 increase in advertising expenditures for Blue-Sky?

b. What increase in unit sales and dollar sales will be necessary to maintain the current level of total contribution dollars if the price is reduced by 5%?