Question

(Determining

relevant

cash

flows​)

​ Captain's Cereal is considering introducing a variation of its current breakfast​ cereal, Crunch Stuff. This new cereal will be similar to the​ old, with the exception that it will contain​ sugar-coated marshmallows shaped in the form of stars. The new cereal will be called Crunch Stuff​ n' Stars. It is estimated that the sales for the new cereal will be $22 ​million; however, 35 percent of those sales will draw from former Crunch Stuff customers who have switched to Crunch Stuff​ n' Stars and who would not have switched if the new product had not been introduced. What is the relevant sales level to consider when deciding whether or not to introduce Crunch Stuff​ n' Stars?

The relevant sales level to consider when deciding whether to introduce Crunch Stuff​ n' Stars is ​$nothing.​(Round to the nearest​ dollar.)

Answer 1

Relevant sales level is the incremental sales that will be generated from the new product.

= $22 million*(1-35%)

= $14.3 million

The relevant sales level to consider when deciding whether to introduce Crunch Stuff​ n' Stars is ​$14.3 million

= $14,300,000