The Fat Toad Farm (FTF) in Vermont produces Goats Milk Caramel Sauce (the traditional Mexican confection known as Cajeta). FTF currently offers four flavors original, vanilla, salted bourbon, and cinnamon in three sizes: petit (2 ounces), classic (8 ounces), and epic (32 ounces). A variety of multi-packs are available (e.g., Petit Caramel Quartet, Classic Caramel Duo, Petit Caramel Dozen). FTF is considering introducing a 16 ounce jar dubbed the Udder Size. As with the existing product line, the Udder Size would be available in all flavors and would be available singly or in a two-pack (i.e., duo). However, FTFs marketing team is concerned that the Udder Size two-pack will cannibalize sales of the epic and classic two-pack (i.e., Classic Caramel Duo).

The epic in any flavor sells for $40.00 and the Classic Duo in any combination of flavors sells for $24.00. The average variable cost for the Classic Duo is $10.60. The average variable cost for the epic is $18.65. If FTF does not introduce the new jar size, the marketing team forecasts 2014 sales of 4,810 epics and 7,025 Classic Duos.

The Udder Size two-pack would sell for $42.00 with expected average variable costs of $21.15. FTF forecasts the Udder Size two-pack to sell 5,100 units in 2014. The FTF marketing team expects 50% of Udders sales to come from epic sales and 35% to come from Classic Duo sales. The remainder of the forecasted 5,100 units will be new sales.

Question 1: If FTF does not introduce Udder Size, what is the estimated baseline contribution for the other two products for 2014?

Question 2: If FTF does introduce Udder Size in 2014, what will be the incremental contribution (IC) to the product line?