Happy Chips Inc. currently manufactures and distributes several varieties of potato chips to different types of retail accounts:
1. Grocery segment - with 250 retail customer locations accounting for 2.1 million annual unit sales and 74% of annual revenue.
2. Drug segment- with 140 customer locations accounting for 365K annual unit sales and 14% of annual revenue.
3. Mass merchandise segment- with 6 locations that account for 400K annual unit sales and 12% of annual revenue.
Please note that all deliveries were store-direct with 2 deliveries per week to grocery stores, 1 delivery per week to drugstores , and 3 deliveries per week to mass merchandisers.
The selling prices for each unit were :
1. Grocery $1.70
2. Drugstores $1.90
3. Mass Merchandise $1.40
Mass merchandise segment wants Happy Chips to cover the suggested retail price (generally about $3.00 regardless of channel) with a sticker bearing its reduced price. The machinery to apply these labels had an annual lease cost of $40,000. Labor and material will cost $0.06 per unit.