The Fat Toad Farm (FTF) in Vermont produces Goats Milk Caramel Sauce (the traditional Mexican confection known
Question:
The Fat Toad Farm (FTF) in Vermont produces “Goat’s Milk Caramel Sauce” (the traditional Mexican confection known as Cajeta). FTF currently offers four flavors – original, vanilla, salted bourbon, and cinnamon – in three sizes: petit (2 ounces), classic (8 ounces), and epic (32 ounces). A variety of multi-packs are available (e.g., “Petit Caramel Quartet,” “Classic Caramel Duo,” “Petit Caramel Dozen”). FTF is considering introducing a 16 ounce jar dubbed the “Udder Size.” As with the existing product line, the “Udder Size” would be available in all flavors and would be available singly or in a two-pack (i.e., “duo”). However, FTF’s marketing team is concerned that the “Udder Size” two-pack will cannibalize sales of the epic and classic two-pack (i.e., “Classic Caramel Duo”).
The epic – in any flavor – sells for $40.00 and the “Classic Duo” – in any combination of flavors – sells for $24.00. The average variable cost for the “Classic Duo” is $10.60. The average variable cost for the epic is $18.65. If FTF does not introduce the new jar size, the marketing team forecasts 2014 sales of 4,810 epics and 7,025 “Classic Duos.”
The “Udder Size” two-pack would sell for $42.00 with expected average variable costs of $21.15. FTF forecasts the “Udder Size” two-pack to sell 5,100 units in 2014. The FTF marketing team expects 50% of “Udder’s” sales to come from epic sales and 35% to come from “Classic Duo” sales. The remainder of the forecasted 5,100 units will be “new” sales.
Question 1: If FTF does not introduce “Udder Size,” what is the estimated baseline contribution for the other two products for 2014?
Question 2: If FTF does introduce “Udder Size” in 2014, what will be the incremental contribution (IC) to the product line?
College Accounting
ISBN: 978-1111528126
11th edition
Authors: Tracie Nobles, Cathy Scott, Douglas McQuaig, Patricia Bille