Captain\'s Cereal is considering introducing a variation of its current breakfas

Question

Captain's Cereal is considering introducing a variation of its current breakfast cereal, Crunch Stuff. This new cereal will be similar to the old, with the exception that it will contain sugar-coated marshmellows shaped in the form of stars. The new cereal will be called Crunch Stuff n' Stars. It is estimated that the sales for the new cereal will be $21 million; however, 30 percent of those sales will draw from the former Crunch Stuff customers who have switched to Crunch Stuff n' Stars and who would not have switched if the new product had not been introduced. What is the relevant sales level to consider when deciding whether or not to introduce Crunch Stuff n' Stars?

Explanation / Answer

Incremental sales = Estimated sales x (1 - Conversion rate)

= $21 million x (1 - 0.3) = $21 million x 0.7 = $14.7 million

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