Do recommend introducing or not introducing extrafood

Reference no: EM132479618

FI is planning to introduce a new product called ExtraFood at a retail price of $5 per unit using the same retailer (the marketing margin of the retailer is still 15%) and broker (brokerage fee is still 5% of retail price per unit sold). ExtraFood's manufacturing cost is $1.50 per unit. In order to introduce ExtraFood, FI would incur additional fixed costs of $4,000,000 per year (e.g. research and development, advertising, depreciation on new equipment). Demand for the new product is estimated to be 2 million units, 45% of which is expected to come from SuperFood.

Question a) Do you recommend introducing or not introducing ExtraFood?

BEV= fixed cost/ (unit cont new-(% decrease in sales current unit cont current)

=$4,000,000/ (5-1.5*1.05-0.45*2.95)

= 1,907,032

So the BEV is smaller than the estimate sale units. So FI could make a profit from the new product. So would recommend introducing ExtraFood.

Question : How do you get these values in the formula (unit cont new-(% decrease in sales current * unit cont current)?

Reference no: EM132479618

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