Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Returning to our running case for Shannon's Brewery introduced in the market share exercise, assume that Shannon's is considering the introduction of a new craft

image text in transcribed
image text in transcribed
image text in transcribed
Returning to our running case for Shannon's Brewery introduced in the market share exercise, assume that Shannon's is considering the introduction of a new craft beer called Irish Stout that will be derived from its award-winning Irish Red. Initially, Irish Stout will only be sold "on- premise" at the brewery. Currently, pints of Irish Red consumed on-premise sell for $5.00 per pint with unit variable costs of approximately $2.75 per pint. Variable costs are predominantly comprised of the costs of ingredients and utilities that directly affect the brewing process. The new craft beer will be positioned at a slightly higher price $5.25 per pint and its unit variable costs will be about $3.25 due to the higher cost of some ingredients. The relevant price, cost, and margin data are below. Irish Red Irish Stout Price $ 5.00 $ 5.25 Unit Variable Costs $ 2.75 $ 3.25 Unit Contribution $ 2.25 $ 2.00 Assume that Shannon's estimates that the sales of the new Irish Stout will be about 250 pints per month, but 27% of these sales will be cannibalized from sales of Shannon's Irish Red. Compute the total combined increase or decrease (incremental change) in contribution dollars for both Irish Red and Irish Stout expected with cannibalization. Express your answer to the nearest dollar. Do not include the dollar sign. 1. Let's stretch a little on this one. Assume Shannon's Irish Red sells 1,000 pints per month in the absence of any cannibalization. Assume also that the new Irish Stout will sell 500 pints per month. The relevant price and cost data are: Irish Red Irish Stout Price $ 5.00 $ 4.88 Unit Variable Costs $ 2.75 $ 3.25 What will be the maximum percentage cannibalization that can exist before the overall change in contribution dollars becomes negative? Express your answer in percentage form to the nearest percent e.g.: 99.49% rounds down to99%; 99.50% rounds up to 100%. Do not include the % symbol

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Times Guide To The Financial Markets

Authors: Glen Arnold

1st Edition

0273730002, 978-0273730002

More Books

Students also viewed these Finance questions