PLEASE SHOW WORK

a) What is the cannibalization rate?

b) How many units each of V-220 will be cannibalized?

c) How many units each of V-660 will be cannibalized?

d) How many incremental units of V-330 will be sold?

e) Should Ms. Hawkins add the V-330 model to the product line? Why?

Jill Hawkins, Chief Marketing Officer for Millennium Sporting Equipment (MSE), Inc., must decide whether to introduce a mid-priced version of the firm's Voyager line of high-performance recreational bicycles next year. The new model (V-330) has a unit variable cost of $180, and will be sold to retailers at a price of $390. Projections made by the product development team indicate that the V-330 would achieve a sales volume of 50,000 units next year, its first year of commercialization. Sixty percent of the V-330's first year's sales volume is expected to come from competitors' products and market growth, and the remaining 40 percent will come from two models currently sold by MSE. Seventy percent of this cannibalized volume will come from the higher-priced V-660 model, which has unit variable costs of $220 and is sold to retailers for $590. The remaining 30 percent of cannibalized volume will come from the economy-priced V-220, which is sold to retailers for $250 and has unit variable cost of $120. If V-330 is not introduced, sales of the existing models next year are expected to be 40,000 units for V-660 and 60,000 units for V-220. The fixed costs of launching V-330 have been forecasted to be $3 million. Answer the following, showing calculations