Question
Returning to our running case for Shannons Brewery introduced in the market share exercise, assume that Shannons is considering the introduction of a new craft
Returning to our running case for Shannons Brewery introduced in the market share exercise, assume that Shannons 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 Shannons estimates that the sales of the new Irish Stout will be about 250 pints per month, but 29% of these sales will be cannibalized from sales of Shannons Irish Red. Compute the change in contribution dollars expected with the introduction of the Irish Stout. Express your answer to the nearest dollar. Do not include the dollar sign in your answer.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started