Question

Kellogg's, maker of Pop-Tarts, recently introduced Pop-Tarts Gone Nutty! The new product includes flavors such as peanut butter and chocolate peanut butter. Although the new Gone Nutty! product will reap a higher wholesale price for the company ($1.25 per eight-count package of the new product versus $1.00 per package for the original product), it also comes with higher variable costs ($0.60 per eight-count package for the new product versus $0.25 per eight-count package for the original product). Assume the company expects to sell 3 million packages of Pop-Tarts Gone Nutty! in the first year after introduction but expects that 65 percent of those sales will come from buyers who would normally purchase existing Pop-Tart flavors (that is, cannibalized sales). Assuming the sales of regular Pop-Tarts are normally 310 million packages per year and that the company will incur an increase in fixed costs of $480,000 during the first year to launch Gone Nutty!, will the new product be profitable for the company? Determine the unit contributions and the loss for every package cannibalized from the original product. (Round to the nearest cent.) Original Pop-Tarts Pop-Tarts Gone Loss for every package Nutty! cannibalized $ 0.65 $ 0.10 Unit contribution $ 0.75 Contribution lost due to cannibalization is $ . (Round to the nearest dollar.)

Answer 1

e Per onit Gross contribution for pop tort gone nutty 1 = ($1.25-80060) = $ 0.65 for par tart = ($1.00 $0.25) 40-75 Per unit Gross contribution loss for Every package cannibalized - $0.10. Number of packages cannibalized = 3,000,000 X 65%. - 1,9500,000 Contribution lost for every package Cannibalized = $o. Contribution last due to cannibalization = 1,950,000 x 0.1 = $ 195000 .