Currently, pints of Irish Red consumed on-premise sell for $5.00 per pint with unit variable...
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Currently, pints of Irish Red consumed on-premise sell for $5.00 per pint with unit variable costs of approximately $2.75 per pint. Variable costs are predominantly comprised of the costs of ingredients and utilities that directly affect the brewing process. The new craft beer will be positioned at a slightly higher price, $5.25 per pint and its unit variable costs will be about $3.25 due to the higher cost of some ingredients. The relevant price, cost, and margin data are below.
Irish Red
Irish Stout
Price
$ 5.00
$ 5.25
Unit Variable Costs
$ 2.75
$ 3.25
Unit Contribution
$ 2.25
$ 2.00
Lets stretch a little on this one. Assume Shannons Irish Red sells 1,000 pints per month in the absence of any cannibalization. Assume also that the new Irish Stout will sell 500 pints per month. The relevant price and cost data are:
Irish Red
Irish Stout
Price
$ 5.00
$ 5.4
Unit Variable Costs
$ 2.75
$ 3.25
What will be the maximum percentage cannibalization that can exist before the overall change in contribution dollars becomes negative? Express your answer in percentage form to the nearest percent e.g.; 99.49% rounds down to 99%; 99.50% rounds up to 100%. Do not include the % symbol.
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