Question

Tesla has been successful with its model M1, but is planning to expand its line of...

Tesla has been successful with its model M1, but is planning to expand its line of products with a new Model J1. Tesla sells the M1 for $70,000 each, with variable costs totaling $49,751 per car. Tesla will price the J1 at $75,000 with variable costs of $56,085 per car. Research among dealers suggests a cannibalization rate of 32% for the J1. Calculate weighted contribution margin for the new J1. Rounding: penny.

MARKETING METRICS IS THE SUBJECT OF THE QUESTION.

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Answer #1

Contribution = Sales - Variable Cost

M1
Contribution of M1 = SP of M1 - Variable Cost of M1
Contribution of M1 = 70000-49751
Contribution of M1 = 20249

“Cannibalized” M1 Contribution = 32%*20249 = 6479.68

J1
Contribution of J1 = SP of J1 - Variable Cost of J1
Contribution of J1 = 75000-56085
Contribution of J1 = 18915

Weighted Contribution Margin for J1 = Contribution of J1 - Cannibalized M1 Contribution
Weighted Contribution Margin for J1 = 18915 - 6479.68
Weighted Contribution Margin for J1 = $ 12435.32

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