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 ($1.35 per eight-count package of the new product versus $1.20 per package for the original product), it also comes with higher variable costs ($0.45 per eight-count package for the new product versus $0.15 per eight-count package for the original product). Assume the company expects to sell 4 million packages of  Pop-Tarts Gone  Nutty! in the first year after introduction but expects that 75 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 320 million packages per year and that the company will incur an increase in fixed costs of $620,000 during the first year to launch Gone  Nutty!, will the new product be profitable for the company?

find:                    original Pop-Tarts          Pop-Tarts Gone Nutty        Loss for every package cannibalized

Unit contribution      $                                      $                                                   $

Also find:

Contribution lost due to cannibalization is $ 

Contribution due to net new volume is $

The increase in total contribution is $

Answer rating: 100% (QA)

The increase in total contribution without considering increase in ... View the full answer