# Don't know how to select marketing so here is the question:​Kellogg's, maker of​ Pop-Tarts, recently introduced​ Pop-Tarts Gone​ Nutty! The new product includes flavors such as peanut butter and chocolate peanut butter. Although the new Gone​ Nutty! product will reap a higher wholesale price for the company ​(\$1.15 per​ eight-count package of the new product versus ​\$1.00 per package for the original​ product), it also comes with higher variable costs ​(\$0.50 per​ eight-count package for the new product versus ​\$0.20 per​ eight-count package for the original​ product). Assume the company expects to sell 4 million packages of​ Pop-Tarts Gone​ Nutty! in the first year after introduction but expects that  70 percent of those sales will come from buyers who would normally purchase existing​ Pop-Tart flavors​ (that is, cannibalized​ sales). Assuming the sales of regular​ Pop-Tarts are normally 280 million packages per year and that the company will incur an increase in fixed costs of ​\$550,000 during the first year to launch Gone​ Nutty!, will the new product be profitable for the​ company?Determine the unit contributions and the loss for every package cannibalized from the original product. ​(Round to the nearest​ cent.)Original​ Pop-Tarts: ​Pop-Tarts Gone​ Nutty!: Loss for every packagecannibalized:Unit contribution: \$ \$ \$

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Asked Feb 18, 2019
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Don't know how to select marketing so here is the question:

​Kellogg's, maker of​ Pop-Tarts, recently introduced​ Pop-Tarts Gone​ Nutty! The new product includes flavors such as peanut butter and chocolate peanut butter. Although the new Gone​ Nutty! product will reap a higher wholesale price for the company ​(\$1.15 per​ eight-count package of the new product versus ​\$1.00 per package for the original​ product), it also comes with higher variable costs ​(\$0.50 per​ eight-count package for the new product versus ​\$0.20 per​ eight-count package for the original​ product). Assume the company expects to sell 4 million packages of​ Pop-Tarts Gone​ Nutty! in the first year after introduction but expects that  70 percent of those sales will come from buyers who would normally purchase existing​ Pop-Tart flavors​ (that is, cannibalized​ sales). Assuming the sales of regular​ Pop-Tarts are normally 280 million packages per year and that the company will incur an increase in fixed costs of ​\$550,000 during the first year to launch Gone​ Nutty!, will the new product be profitable for the​ company?
Determine the unit contributions and the loss for every package cannibalized from the original product. ​(Round to the nearest​ cent.)

Original​ Pop-Tarts: ​Pop-Tarts Gone​ Nutty!: Loss for every package
cannibalized:
Unit contribution: \$ \$ \$

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## Expert Answer

Step 1

Step1: Calculating the value of contribution per unit for both product. We have,

Contribution per 8 package = Selling price per 8 package – Variable cost per 8 package

For Pop-Tarts Gone Nutty product,

Selling price per 8 package = \$ 1.15

Variable cost per 8 package = \$ 0.50

Contribution margin per 8 package = 1.15 – 0.50 = \$ 0.65

For original pop-tarts product,

Selling price per 8 package = \$ 1.00

Variable cost per 8 package = \$ 0.20

Contribution margin per 8 package = 1.00 – 0.20 = \$ 0.80

Step 2

Contribution margin per 8 package = 1.00 – 0.20 = \$ 0.80

Step2: Calculating the loss for every package cannibalized. We have,

Loss for every package cannibalized = Contribution margin for original pop-tarts product – Contribution margin for Pop-Tarts Gone Nutty product

Loss for every 8 package cannibalized = \$ 0.80 – 0.65

Loss for every 8 package cannibalized = \$ 0.15

Step 3

Step3: Calculating the value of contribution loss due to cannibalization. We have,

Number of unit is to be sold = 4,000,000

Percentage of sales come from existing buyer = 70%

Loss for every 8 package cannibalized = \$ 0.15

Contribution loss due to cannibalization = Num...

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