Figure 10-2
Anderson Company manufactures a variety of toys and games. John Boone, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in 2011 when 30,000 were projected. Sales for 2008 look no better. At £100 per game, it is not a hot seller. Direct costs of the board game are £56 variable cost and £100,000 fixed. John is considering several options. Option One: Cut the price to £70 and perhaps sell 15,000 units. Option Two: Cut the price to £60, reduce material costs by £10, and cut advertising by £60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to £80 and include a £10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 per cent of the rebate coupons would be redeemed.
-Refer to Figure 10-2. Which option is preferred?

Question

Quizplus · Accepted Answer

Option Three is the preferred choice. It offers a slightly higher price point while still including an incentive for consumers to purchase with the mail-in rebate offer. The anticipated volume of 15,000 units sold is also higher than the other options. Additionally, the cost of the rebate offer can be offset by the higher price point and resulting revenue.

Figure 10-2 Anderson Company Manufactures a Variety of Toys and Games. John