Question 1 A small bakery sells two different types of cakes: (1) the Avalanche (chocolate, caramel, and double fudge), and (2) Rocky Mountain (chocolate, Oreo bits, and chocolate fudge). The Avalanche cake experienced devastating sales in the first quarter of 2017. To rectify the situation, they are thinking of introducing a sales promotion ($5) on the Avalanche to increase demand. The Avalanche retail price: $18 per unit The Avalanche total (production) cost: $4.50 per unit The Rocky Mountain retail price: $21 per unit The Rocky Mountain total (production) cost: $6.25 per unit Looking back at last year, the bakery's manager noticed that the Avalanche had a sales promotion of $5 in April as well, and they were able to increase their sales volume (see table below). Assume that similar sales volumes will be experienced this year. LAST YEAR SALES in units The Avalanche Rocky Mountain April 2016 (Avalanche on sale) 1,200 210 May 2016 (no sales promotions) 700 650 June 2016 (no sales promotions) 700 650 QUESTION: To identify whether to implement the sales promotion, calculate the expected profit for AVALANCHE for April of this year (2017)? i.e. calculate the profit for Avalanche - potential cannibalization cost. If their objective is to gain $10,000 profit per month, will a sales promotion help them achieve the goal, or should they look for a different solution?
Question 1 A small bakery sells two different types of cakes: (1) the Avalanche (chocolate, caramel, and double fudge), and (2) Rocky Mountain (chocolate, Oreo bits, and chocolate fudge). The Avalanche cake experienced devastating sales in the first quarter of 2017. To rectify the situation, they are thinking of introducing a sales promotion ($5) on the Avalanche to increase demand. The Avalanche retail price: $18 per unit The Avalanche total (production) cost: $4.50 per unit The Rocky Mountain retail price: $21 per unit The Rocky Mountain total (production) cost: $6.25 per unit Looking back at last year, the bakery's manager noticed that the Avalanche had a sales promotion of $5 in April as well, and they were able to increase their sales volume (see table below). Assume that similar sales volumes will be experienced this year. LAST YEAR SALES in units The Avalanche Rocky Mountain April 2016 (Avalanche on sale) 1,200 210 May 2016 (no sales promotions) 700 650 June 2016 (no sales promotions) 700 650 QUESTION: To identify whether to implement the sales promotion, calculate the expected profit for AVALANCHE for April of this year (2017)? i.e. calculate the profit for Avalanche - potential cannibalization cost. If their objective is to gain $10,000 profit per month, will a sales promotion help them achieve the goal, or should they look for a different solution?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 1
A small bakery sells two different types of cakes: (1) the Avalanche (chocolate,
caramel, and double fudge), and (2) Rocky Mountain (chocolate, Oreo bits, and
chocolate fudge). The Avalanche cake experienced devastating sales in the first
quarter of 2017. To rectify the situation, they are thinking of introducing a sales
promotion ($5) on the Avalanche to increase demand.
The Avalanche retail price: $18 per unit
The Avalanche total (production) cost: $4.50 per unit
The Rocky Mountain retail price: $21 per unit
The Rocky Mountain total (production) cost: $6.25 per unit
Looking back at last year, the bakery's manager noticed that the Avalanche had a
sales promotion of $5 in April as well, and they were able to increase their sales
volume (see table below). Assume that similar sales volumes will be experienced this
year.
LAST YEAR
SALES in units
The Avalanche
Rocky Mountain
April 2016
(Avalanche
on sale)
1,200
210
May 2016
(no sales
promotions)
700
650
June 2016
(no sales
promotions)
700
650
QUESTION: To identify whether to implement the sales promotion, calculate the
expected profit for AVALANCHE for April of this year (2017)? i.e. calculate the profit
for Avalanche - potential cannibalization cost. If their objective is to gain $10,000
profit per month, will a sales promotion help them achieve the goal, or should they
look for a different solution?
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