Perfam is a manufacturer of fragrances for women. It currently sells two brands,
ID: 1156053 • Letter: P
Question
Perfam is a manufacturer of fragrances for women. It currently sells two brands, one called Allure, which is sold to wholesalers for $40, and another called Beauty, which is sold to wholesalers for $20. It is considering adding a mid-priced brand called Classy for $30. Perfam’s variable costs and prices to wholesalers for six ounce bottles are:
Allure
Beauty
Classy (new brand)
Unit selling price
$40.00
$20.00
$30.00
Unit variable costs
$20.00
$10.00
$15.00
Perfam expects to sell 10,000 bottles of the new Classy brand, but 5,000 of those sales will be cannibalized from Allure and 1,000 will be cannibalized from Beauty. Before Perfam considered the new brand, it had expected to sell 11,000 bottles of Allure and 10,000 bottles of Beauty. Should Perfam launch the new Classy brand?
Allure
Beauty
Classy (new brand)
Unit selling price
$40.00
$20.00
$30.00
Unit variable costs
$20.00
$10.00
$15.00
Explanation / Answer
Alterntaive-1 No New product is launched Income Statement Allure Beauty Total Sales unit 11000 10000 Selling price 40 20 variable cost 20 10 Sales revenue 440000 200000 640000 Less: Variable cost 220000 100000 320000 Contribution margin 220000 100000 320000 Alternative-2 Introduction of New prodct Allure Beauty classy Total Sales unit 6000 9000 10000 Selling price 40 20 30 variable cost 20 10 15 Sales revenue 240000 180000 300000 720000 Less: Variable cost 120000 90000 150000 360000 Contribution margin 120000 90000 150000 360000 As contribution increased by $ 40000 New product should be launched
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.