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

($1.15

per eight-count package of the new product versus

$1.00

per package for the original product), it also comes with higher variable costs

($0.50

per eight-count package for the new product versus

$0.15

per eight-count package for the original product). Assume the company expects to sell

6

million packages of Pop-Tarts Gone Nutty! in the first year after introduction but expects that

65

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

320

million packages per year and that the company will incur an increase in fixed costs of

$420,000

during the first year to launch Gone Nutty!, will the new product be profitable for the company?

Part 2

Determine the unit contributions and the loss for every package cannibalized from the original product. (Round to the nearest cent.)

	Original Pop-Tarts	Pop-Tarts Gone Nutty!	Loss for every package cannibalized
Unit contribution	$. 85.85	$0.650.65	$. 2.2

Part 3

Contribution lost due to cannibalization is

-780,000

(Round to the nearest dollar.)

Part 4

Contribution due to net new volume is:

Part 5

Increase in the total contribution is: