What are the answers to 2, 3, 4? Cannibalization: 1. Company A sells umbrellas.
ID: 2482053 • Letter: W
Question
What are the answers to 2, 3, 4? Cannibalization: 1. Company A sells umbrellas. They have introduced a new umbrella which costs $5 to make and will sell for $15. The amount they expect to sell is 500 units. What is the contribution in dollars of this new umbrella? $5,000 2. The old umbrella sold 1,000 units before the new one was introduced. The company estimates a 50% cannibalization rate from the new umbrella towards the old one. What percentage decrease will they expect to see on the “old” umbrella? 3. The “old” umbrella sold for $10 and cost $4 to make. What is the total dollar contribution decline of the “old” umbrella after the new one is introduced? 4. What share of total sales will the “old” umbrella represent after the introduction of the new one?
Explanation / Answer
2. The percentage decrease in sales in old umbrella is calculated below:
The no. of units sold before the introduction of new umbrella = 1000
The cannibalization rate given in the question =50%
The new no. of units sold of old umbrella =1000*50%=500 units
so percentage decline in the sale of old umbrella =500
------------ *100
1000
=50 %
3.The contribution from one unit =$10-$4
=$6
Total contribution from old umbrella before introduction of new umbrella = 1,000* 6
=$6,000
Total contribution from old umbrella after introduction of old umbrella =500*6
=$3,000
Decline in contribution =$6,000-$3,000
=$3,000
4.Total no. of units sold includes old and new umbrella =500+500
=1000
No. of units of old umbrella sold aftre introduction of new umbrella =500
share of total sales will the “old” umbrella represent after the introduction of the new>
--------------*100
1000
=50%
Assumption: it has been assumed that the share of total sale has been asked for no.of units.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.