Read the following New Case for Assessment of Cannibalization: Ignore all prior figures

Kann Inc. manufactures and sells high quality skateboards in Northern California. Kann Inc. sold 6,000 BK1 models at $100 each and 4,000 BL2 models at $120 each last year. The company expects to launch and sell 2,000 BM3 models this year. Sixty percent of BM3 sales volume is expected to come from other models already being manufactured by Kann Inc. (40 percent from BK1 models and 60 percent from BL2 models). Kann Inc.s BM3 would be sold to retailers for $140. BM3s variable cost per unit is $60. Kann Inc. will incur no additional fixed costs to add its new BM3 model into the line.

Tips for solutions: Show all the detailed steps of assessment of cannibalization. First, compute the total contribution ($) of the original product line of BK1 & BL2. Then, compute how many BK1 and BL2 models will be cannibalized. Then, compute the total contribution ($) for the three models altogether with the changed demands for BK1 & BL2 and BM3 demand.

3.1 3.5: Fill in the table.

[Current Cost structure of the skateboards at Kann Inc.]

	Unit Selling Price	Total Variable Costs per Unit (= COGS)	Unit Contribution ($)	Demand per Year (Units) (= Sales Volume per year)	Total Contribution ($) (= Gross Margin)
BK1 model	$100.00	$60.00	3.1) $_____________	6,000	3.3) $_______________
BL2 model	$120.00	$70.00	3.2) $_____________	4,000	3.4) $_______________
Grand Total	N/A	N/A	N/A	10,000 (= 6,000 + 4,000)	3.5) $_______________

3.6 3.15: Fill in the table.

[New Cost structure of the skateboards at Kann Inc. with adding BM3 model]

	Unit Selling Price	Total Variable Costs per Unit (= COGS)	Unit Contribution ($)	Demand per Year (Units) (= Sales Volume per year)	Total Contribution ($) (= Gross Margin)
BK1 model	$100.00	$60.00	3.6) $_____________	3.9) ______________	3.12) $_______________
BL2 model	$120.00	$70.00	3.7) $_____________	3.10) ______________	3.13) $_______________
BM3 model (New model)	$140.00	$60.00	3.8) $_____________	2,000	3.14) $_______________
Grand Total	N/A	N/A	N/A	3.11) ______________	3.15) $_______________

3.16) Should Kann Inc. introduce the BM3 model? Why? (3pts)