Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Currently, pints of Irish Red consumed on-premise sell for $ 5.00 per pint with unit variable costs of approximately $2.75 per pint. Variable costs are

Currently, pints of Irish Red consumed on-premise sell for $5.00 per pint with unit variable costs of approximately $2.75 per pint. Variable costs are predominantly comprised of the costs of ingredients and utilities that directly affect the brewing process. The new craft beer will be positioned at a slightly higher price, $5.25 per pint and its unit variable costs will be about $3.25 due to the higher cost of some ingredients. The relevant price, cost, and margin data are below.

Irish Red Irish Stout
Price $ 5.00 $ 5.25
Unit Variable Costs $ 2.75 $ 3.25
Unit Contribution $ 2.25 $ 2.00

Lets stretch a little on this one. Assume Shannons Irish Red sells 1,000 pints per month in the absence of any cannibalization. Assume also that the new Irish Stout will sell 500 pints per month. The relevant price and cost data are:

Irish Red Irish Stout
Price $ 5.00 $ 5.4
Unit Variable Costs $ 2.75 $ 3.25

What will be the maximum percentage cannibalization that can exist before the overall change in contribution dollars becomes negative? Express your answer in percentage form to the nearest percent e.g.; 99.49% rounds down to 99%; 99.50% rounds up to 100%. Do not include the % symbol.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Financial Management

Authors: Eugene BrighamPhillip Daves

1st Edition

0324594712, 9780324594713

More Books

Students also viewed these Finance questions