Nicole's Nifty T-shirts is struggling to increase revenue and profits. Nicole has decided to hire a marketing consultant to improve sales and inturn the goal is to improve profitability. The marketing firm has provided the following data about 2 separate ideas they have to improve the performance of the company.

Option 1 - increase the price of the t-shirts by $2, by spending $20,000 in advertising to increase brand image.

Option 2 - increase the price of the t-shirts by $10, by increasing the quality of the t-shirts (purchased from a supplier with an additional Variable Cost of $2.00 and by spending $90,000 in advertising to increase brand image.

ORIGINAL SITUATION
Price	$ 15.00
Variable Costs	$ 10.00
Contribution Margin	$ 5.00	33%
FC	$ 20,000.00
Current BE in units	4000	units

OPTION 1		OPTION 2
Increase in Price	$ 2.00	Increase Price	$ 10.00
		Increase VC	$ 2.00
Increase in FC	$ 20,000.00	Increase FC	$ 90,000.00
	OPTION 1		OPTION 2
Price	$ 17.00		$ 25.00
VC	$ 10.00		$ 12.00
CM	$ 7.00		$ 13.00

REQUIRED:

1. What is the Point of Indifference between the 2 options?
2. Which would they prefer if expected demand was 12,000?

Answer rating: 100% (QA)

a Indifference between 2 options is 11667 Units b If the expected demand is 12000 units then profit ... View the full answer