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 $1.10 per package for the original product), it also comes with higher variable costs ($0.60 per eight-count package for the new product versus $0.30 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 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 $520,000 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.) Loss for every package cannibalized Pop-Tarts Gone Nutty! Original Pop-Tarts Unit contribution S8 S.75 $.05 Contribution lost due to cannibalization is $ 112,500. (Round to the nearest dollar) Contribution due to net new volume is S 562,500. (Round to the nearest dollar.) The increase in total contribution is $ 450,000. (Round to the nearest dollar.) Introducing the new product should not be profitable
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 $1.10 per package for the original product), it also comes with higher variable costs ($0.60 per eight-count package for the new product versus $0.30 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 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 $520,000 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.) Loss for every package cannibalized Pop-Tarts Gone Nutty! Original Pop-Tarts Unit contribution S8 S.75 $.05 Contribution lost due to cannibalization is $ 112,500. (Round to the nearest dollar) Contribution due to net new volume is S 562,500. (Round to the nearest dollar.) The increase in total contribution is $ 450,000. (Round to the nearest dollar.) Introducing the new product should not be profitable
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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If possible, I would like a full detailed explanation for how to find the
Contribution due to net new volume
and
The increase in total contribution
Transcribed Image Text: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 $1.10 per package for the
original product), it also comes with higher variable costs ($0.60 per eight-count package for the new product versus $0.30 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 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 $520,000 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.)
Loss for every
package
cannibalized
Pop-Tarts Gone
Nutty!
Original
Pop-Tarts
Unit contribution
S8
S.75
$.05
Contribution lost due to cannibalization is $ 112,500. (Round to the nearest dollar)
Contribution due to net new volume is S 562,500. (Round to the nearest dollar.)
The increase in total contribution is $ 450,000. (Round to the nearest dollar.)
Introducing the new product should not be profitable
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