Now assume you are the head of the film division for Foto Moto You haw the fallo

Question

Now assume you are the head of the film division for Foto Moto You haw the fallowing information about the current sales situation for the Foto Moto brands (disregard the numbers from the case and previous questions for this question as you will use just retail number and only the following info instead The proposed wiling price and COGS for Fujun are included in the table above the expected sales for this year if it la added would be 10,000,000 rolls (it la only available part year) with 10-20% of these sales turning from the ES modal and 30-40% coming from the Gold Star line The rest come from outside the brand at incremental sales Assume the advertising agency thinks it will need an incremental $ 1000,000 to add the Kujun line Assume there are no additional increased fixed coats as the lute can be easily adapted to produce the new product and there it sufficient capacity Should you launch the Fujun line? Why or why not? I

Explanation / Answer

Calculation of incremental profits from launching Funjun Line:

Expected incremental profits from additional sales = 10,000,000 rolls * ($2.49 - $1.49) = $10,000,000

Less: Loss of Profit on lost sale of ES = (10,000,000 rolls *20%* ($4.27-$2.27)= $4,000,000

Less: Loss of Profit on lost sale of Gold Start = (10,000,000 rolls *40%* ($3.49-$1.99) = $6,000,000

Less: Incremental advertisement cost = $1,000,000

Net Incremental loss = $1,000,000

Hence it is not acceptable to launch Funjun Line, because it will result in incremental loss.

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