Question

Erosion costs. Heavenly Cookie Company reports the following annual sales and costs for its current product line: Click on this icon to download the data from this table Chocolate Snicker Peanut Chip doodle Butter 251,000 205,000 | 142,000 $0.50 $0.49 $0.55 $0.22 $0.18 $0.19 Volume Price Cost Lemon Drop 83,000 $0.46 $0.24 Cream- Filled 97,000 $0.54 $0.31 Heavenly is thinking of adding Mississippi Mud brownies to the product line. The ultra-rich brownies would sell for $0.93 a piece and cost $0.80 to produce. The forecasted brownie volume is 222,000 per year. Introduction of brownies, however, will reduce cookie sales by 178,000, with the following drops in sales per cookie: 100,000 in chocolate chip, 37,000 in snickerdoodle, 25,000 in peanut butter, 7,000 in lemon drop, and 9,000 in cream-filled. What is the erosion cost of introducing the brownies? What is the net change in annual margin if Mississippi Mud brownies are added to the product line? What is the erosion cost of introducing the brownies? $1 (Round to the nearest dollar.)

Answer 1

solution: choco chip snicker doodle Peanut butter Lemon drop Cream filled sales lost Price cost erosion cost | d=a*(b-c) 100,000 0.50 0.22 28,000 37,000 0.49 0.18 11,470 25,000 0.55 0.19 9,000 7,000 0.46 0.24 1,540 9,000 0.54 0.31 2,070 52,080 Total b) -23220 net change in annual margin 222000*(0.93-0.8)-52080