Question

an dishwashers for ho Kleen, Inc. is a manufacturer of ich performance use. To date, the company has focused premium priced product designed een Elite is a ce specialty company is considering introducing mass market priced brand will be soldach he deres like Home acturer of high performinge low water utilization, dishwashers om company has focused on selling just one product: Kleen blite. kleen ailers alonproduct designed for discerning buyers and sold through appliance Spec sade brands like Wolrand SubZero. Based on the success or keen Elite, the et brand named Always kleen. This lowe Depot and Lowes and will be available ants like Wayfair Estimates predict that Always keen will cannibalize online through merchants like Wayfa 40% of Kleen Elite's sales. Here is selected data that the product manager has come e product manager has collected: Kleen Elite $1100 Always Kleen $850 $1399 $999 Retailer purchase price Manufacturer's suggested retail price Variable cost/unit Fixed costs per year Advertising Last year's sales Unit sales expected this year S550 $1,500,000 $500,000 120,000 $500 $900,000 $400,000 110,000 is the total profit that the company should expect next year if they introduce Always Kleen? (15 points) b. Should the company introduce Always Kleen? justify your answer with mathematical analysis. (5 points)

Answer 1

I have solved this problem on excel kindly refer to below image for solution.

Notes: As costs for both the products are given as per unit terms, so to calculate the profit from this I have changed this into Total values by multiplying number of expected sales for the given two products.

For product Always Kleen it is given that the expected sales for the period would be 110000 units.

and for product Kleen Elite it is given in the question that if we introduce Always Kleen it will kill 40% of the Kleen Elite sales, so the number of sales units for Kleen Elite will be 60% of the previous.

After seeing the above solution it is clear that the Kleen Elite is giving more profits than the Always Kleen.

- Total(millions) Always Kleen Total (millions) Total(millions) Always Kleen Total (millions) Retailer purchase price/ unit(Revenue) Variable cost / unit Fixed cost / Year Advertising Kleen Elite $1,100 $550 $1,500,000 $500,000 60%of previous year sales = 0.6*120000 $79.2 $39.6 $1.5 $0.5 $850 $93.5 $500 $55 $900,000 $0.9 $400,000 $0.4 1,10,000 Expected sales Profit when company continues Kleen Elite = (Retailers purchase price - Variable cost - Fixed cost - Advertising cost) = $79.2 - $39.6. - $1.5 - $0.5 $37.6 Profit if company introduces Always Kleen = (Retailers purchase price : Variable cost - Fixed cost- Advertising cost) =$93.5 - $55 - $0.9 - $0.4 = $37.2