You are preparing for a meeting at which your company will discuss its selling price for a new product. You have already made the decision to invest 2.3 million in production facilities with a capacity to produce 350,000 units per year. Fixed expenses, including depreciation and minimal advertising, will be 300,000 per year. Variable expenses will be $4 per unit. Your marketing people have developed three sales scenarios:

(a). At a price of 7 per unit, below much of the competition, you sell 200,000 units per year.

(b). At a price of 9 per unit, the average among the competition, you sell 135,000 units per year.

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(c). At a price of 7 per unit, with an additional 400,000 per year spent to advertise your low price, you sell 300,000 units per year.

Prepare a schedule (according to the following format) that shows the pro forma (or expected) profit from each scenario.

Which scenario would you recommend? Why?

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