6.There is excitement in the air! The new UltraGuard flea collar is about to be

Question

6.There is excitement in the air! The new UltraGuard flea collar is about to be introduced to the market. The collar will feature enhanced protection, increased longevity and is environmentally friendly. It will be priced at $9.99 and has unit variable costs of $4.25. The company expects to sell 49,500 UltraGuard collars during the next six months. Some of the sales will come at the expense of the current product, the PetArmor collar, priced at $6.65 with variable costs of $3.10. Projected sales for the PetArmor collar are 95,000 units (without the introduction of the UltraGuard). The market analyst estimates that the UltraGuard collar will cannibalize 20,000 PetArmor collars during the introductory 6 month period.

Calculate the change in PetArmor's contribution margin during the 6 month introductory period due to cannibalization. Report your answer as a positive number.

ANSWER IS 71,000 SHOW ME HOW TO SOLVE IT

Explanation / Answer

contribution margin of petAarmors before cannibalization

= 95000 * (6.65-3.10) = 337250

COntribution margin of pet Armors after cannibalization

= 70000 * (6.65 - 3.10) = 266250

change in contribution margin = 337250 - 266250

= $71,000

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