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 $