Heavenly Cookie Company reports the following annual sales and costs for its current product line:...
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Accounting
Heavenly Cookie Company reports the following annual sales and costs for its current product line:
Chocolate Chip
Snickerdoodle
Peanut Butter
Lemon Drop
Cream-Filled
Volume
250000
204000
140000
81000
94000
Price
$0.40
$0.48
$0.54
$0.46
$0.58
Cost
$0.21
$0.20
$0.16
$0.21
$0.33
Heavenly is thinking of adding Mississippi Mud brownies to the product line. The ultra-rich brownies would sell for $0.92 a piece and cost $0.80 to produce. The forecasted brownie volume is 223,000 per year. Introduction of brownies, however, will reduce cookie sales by 190,500,with the following drops in sales per cookie:110,000in chocolate chip, 36,000 in snickerdoodle, 28,000 in peanut butter, 7,000 in lemon drop, and 9,500 in cream-filled.
What is the erosion cost of introducing the brownies?
What is the net change in annual margin if Mississippi Mud brownies are added to the product line?
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