Jeb is the owner of a small-scale chocolate factory operated in South Burnaby area. Jeb sells a variety of chocolate products via Sam Foods (a food distributor) to local food retailers in the Burnaby area.

Jeb recently added a new line of premium Hazelnut chocolates to his existing Milk chocolate product line. After some initial research, Jeb is planning to sell a pack of Hazelnut chocolates to Sam Foods at an introductory price of $12 a pack (for the first year of its launch). During the first six months after the launch, Jeb sold 2400 packs of Hazelnut chocolates to Sam Foods.

[1] Jebs target is to make a 28% gross mark-up (on Jebs selling price) on all new products that he sells to Sam Foods. If Jeb is to make this profit target %, what is the maximum cost Jeb should incur in manufacturing a pack of Hazelnut chocolates. [2] Calculate Jebs gross margin % for a Hazelnut chocolate pack. Is there a difference between the margin and the mark up %? Why? Explain. [3] Sam Foods makes profits by adding a 25% margin to the price he pays to Jeb. Local food retailers usually mark-up chocolate products by 32% in setting retail prices. Considering the above, calculate the final price paid by the end consumers for a pack of Hazelnut chocolates. Show your work clearly.

Jeb noticed Hazelnut chocolates were cannibalizing 40% of their regular Milk chocolate packs purchased by Sam Foods during this same period. Jeb sells regular Milk chocolates to Sam Foods at $10 a pack with a 35% margin. The cost structure of milk chocolates is the same the Hazelnut chocolates.

Jeb is interested to calculate his breakeven sales volume for the Hazelnut chocolate product line. 65% of the total cost of the Hazelnut chocolates (answer to Q1) were variable costs. The fixed costs to set up and launch Hazelnut chocolates were $15,000.

[4] What is Jebs break-even volume for Hazelnut chocolates? What is Jebs profit or loss from Hazelnut chocolates based on his current level of sales (six months)?

[5] Using the DIKW model, should jeb continue sell Hazelnut chocolates at the expenses of his milk chocolate product line? What is your advice to Jeb?