Sav Homework: Homework Three Score: 0 of 2 pts 9 of 10 (0 complete) HW Score: 0%
ID: 2821418 • Letter: S
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Sav Homework: Homework Three Score: 0 of 2 pts 9 of 10 (0 complete) HW Score: 0%, 0 of 20 p Question Help P12-7 (similar to (Determining relevant cash flows) Fruity Stones is considering introducing a variation of its current breakfast cereal, Joit n' Stones. This new cereal will be similar to the old with the exception that it will contain more sugar in the form of small pebbles. The new cereal will be called Stones n' Stuff. It is estimated that the sales for the new cereal will be $93 million, however, 40 percent of those sales will be from former Fruity Stones customers who have switched to Stones n' Stuff. These regardless of whether the new product is offered since this is the amount of sales the firm expects to lose to a competitor product that is going to be introduced at about the same time. What is the relevant sales level to consider when deciding whether or not to introduce Stones n Stult? former customers will be lost The relevant sales level to consider when deolding whether to introduce Stones n' Stulf is s(Round to the nearest dollar.) Enter your answer in the answer box and then click Check Answer Clear AExplanation / Answer
Expected sales of Stones n Stuff = $93 million
40% of the sales of Stones n Stuff is from the customers of former Fruity Stones who have switched to Stones n Stuff. But this 40% sales will be lost whether Stones n Stuff is introduced or not. Hence, future sales of former Fruity Stone i.e. Jolt n Stone will be lower by $37.2 million (93 x 40%) whether new product is introduced or not.
Hence, relevant sales level to consider when deciding whether to introduce Stones n Stuff is $93 million .
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