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Assume the company expects to sell 300 million ounces of M&M Premiums within the first year...

Assume the company expects to sell 300 million ounces of M&M Premiums within the first year after introduction but expects that half of those sales will come from buyers who would normally purchase M&M regular candies (that is, cannibalized sales). Assuming the sales of regular M&M candies are normally 1 billion ounces per year and that the company will incur an increase in fixed costs of $5 million during the first year of production for M&M Premiums, will the new product be profitable for the company? Refer to the discussion of cannibalization in Appendix 2: Marketing by the Numbers for an explanation regarding how to conduct this analysis.

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Answer #2

Answer:-

It is estimated that the new M&M premium product will generate more 150million ounces in sales that is (300 million ounces -150 million ounces cannibalized units) will have $0.13 per ounce in contribution.

Contribution because of net new volume =150,000,000 * $0.13 per unit

= $19500000

The net effect is that the company will gain $16500000 in contribution by introducing the M&M premium

incremental contribution = $19.5 million - $3million

= $16.5 million

Yes new product is profitable and it will increase the company’s profitability in $11.5million.

answered by: anonymous
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