Judy Brown, marketing manager for Midwest Sporting Equipment (MSE), Inc., must decide whether to introduce a mid-priced version of the firm's Cyclone line of high-performance recreational bicycles next year. The new model (C-330) has a unit variable cost of $140, and will be sold to retailers at a price of $320. Projections made by the product development team indicate that, if introduced C-330 will achieve a sales volume of 70,000 units next year, its first year of commercialization. Forty percent (40%) of the C-330s first year's sales volume is expected to come from competitors' products and market growth, and the remaining sixty percent (60%) is expected to come from two models currently sold by MSE the C-220 and C-440. Seventy percent of the cannibalized volume will come from the higher-priced C- 440 model, which has a unit variable cost of $250 and is sold to retailers for $540. The remaining thirty percent of cannibalized volume will come from the economy-priced C-220 model, which is sold to retailers for $210 and has a unit variable cost of $90. If C-330 is not introduced, sales of the existing models next year are expected to be 45,000 units for C-440 and 100,000 units for E-220. The fixed costs of launching C-330 have been forecasted to be $4,000,000.

Answer the following, showing calculations.

a) What is the cannibalization rate? (1 pt)

b) How many units of C-220 will be cannibalized? (3 pts)

c) How many units of C-440 will be cannibalized? (3 pts)

d) How many incremental units of C-330 will be sold? (3 pts)

e) Should Ms. Brown add the C-330 model to the product line? Why?