Question
Kellogg's, maker of Pop-Tarts, recently introduced Pop-Tarts Gone Nutty! The new product includes flavors such as peanut butter and chocolate peanut butter. Although the new
Kellogg's, maker of Pop-Tarts, recently introduced Pop-Tarts Gone Nutty! The new product includes flavors such as peanut butter and chocolate peanut butter. Although the new Gone Nutty! product will reap a higher wholesale price for the company ($ per eight-count package of the new product versus $ per package for the original product), it also comes with higher variable costs ($ per eight-count package for the new product versus $ per eight-count package for the original product). Assume the company expects to sell million packages of Pop-Tarts Gone Nutty! in the first year after introduction but expects that percent of those sales will come from buyers who would normally purchase existing Pop-Tart flavors (that is, cannibalized sales). Assuming the sales of regular Pop-Tarts are normally million packages per year and that the company will incur an increase in fixed costs of $ during the first year to launch Gone Nutty!, will the new product be profitable for the company?
\begin{tabular}{lccc} \hline & Original Pop-Tarts & Pop-Tarts Gone Nutty! & Loss for every package cannibalized \\ \hline Unit contribution & $ & $ & $ \\ \hline \end{tabular}Step by Step Solution
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