What is the erosion cost of introducing the brownies? What is the net change in annual margin if Mississippi Mud brownies are added to the product line? What is the net change in annual margin if Mississippi Mud brownies are added to the product line?
What is the erosion cost of introducing the brownies? What is the net change in annual margin if Mississippi Mud brownies are added to the product line? What is the net change in annual margin if Mississippi Mud brownies are added to the product line?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Erosion
costs.
Heavenly Cookie Company reports the following annual sales and costs for its current product line:|
|
Chocolate
Chip
|
Snicker-
doodle
|
Peanut
Butter
|
Lemon
Drop
|
Cream-
Filled
|
|
|
Volume
|
252,000
|
208,000
|
142,000
|
80,000
|
92,000
|
|
|
Price
|
$0.40
|
$0.47
|
$0.54
|
$0.48
|
$0.51
|
|
|
Cost
|
$0.21
|
$0.19
|
$0.18
|
$0.23
|
$0.35
|
Heavenly is thinking of adding Mississippi Mud brownies to the product line. The ultra-rich brownies would sell for
forecasted brownie volume is
$0.94
a piece and cost
$0.85
to produce. The 222,000
per year. Introduction of brownies, however, will reduce cookie sales by
179,000,
with the following drops in sales per cookie:
100,000
in chocolate chip,
35,000
in snickerdoodle,
27,000
in peanut butter,
8,000
in lemon drop, and
9,000
in cream-filled. What is the erosion cost of introducing the brownies? What is the net change in annual margin if Mississippi Mud brownies are added to the product line?What is the net change in annual margin if Mississippi Mud brownies are added to the product line?
(Round to the nearest dollar.)
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