ABC Company currently sells squishy balls. The product development team has developed a new, improved design.

They expect sales of the original product to decrease once the new design launches.

Current price		$2.50	Current cost		$1.20	Current units sold		40,000
New product price		$3.30	New product cost		$1.60	New version sales		30,000
Decrease sales original due new product launch					50%	Marketing price decrease			40%

1. What is the contribution margin for ABC with the current widget?

2. What is the expected contribution margin for ABC after the new product launch?

3. What is the erosion cost?

4. Application: marketing is reviewing a 40% price reduction in the current design that will eliminate the drop in sales.

What is the contribution margin for the original widget w/price reduction?

5. Should they reduce the price of the original widget to combat erosion?