Sweetless Candy Company is preparing to introduce a new low-calorie chocolate ba
ID: 2556294 • Letter: S
Question
Sweetless Candy Company is preparing to introduce a new low-calorie chocolate bar, Choco-lite. Shown below are the two alternative marketing plans that have been developed. The first plan positions the new product directly against all regular chocola bars. The second plan positions Choco-lite as an exclusive alternative to high-calorie egular bars. Which plan should be adopted? Why? plun Plan 1 Plan 2 Sa $0.60 $0.34 Retail selling price Factory selling price Materials/labour Packaging Total overhead Advertising and Promotion Total Market 1.00 $0.56 $0.18/unit $0.18/unit $0.06/unit $0.10/unit $200,000 $200,000 $600,000 $1,200,000 200,000,000 bars Projected Market Share 5% 3%Explanation / Answer
Evaluation of Plan 1
Materials and labour cost per unit = $0.18
Packaging cost per unit = $0.06
Total variable cost per unit = $0.18 + $0.06 = $0.24
Sale price (factory) per unit = $0.34
Therefore contribution per unit = $0.34 - $0.24 = $0.10
Total number of units to be sold = 200,000,000 *5% = 10,000,000 units
Total contribution = 10,000,000 units * $0.10 per unit = $1,000,000
Total overhead = $200,000
Advertising and promotion cost = $600,000
Total fixed cost = $200,000 +$600,000 = $800,000
Therefore net income = Contribution - fixed cost
= $1,000,000 - $800,000
= $200,000
Evaluation of Plan 2
Materials and labour cost per unit = $0.18
Packaging cost per unit = $0.10
Total variable cost per unit = $0.18 + $0.10 = $0.28
Sale price (factory) per unit = $0.56
Therefore contribution per unit = $0.56 - $0.28 = $0.28
Total number of units to be sold = 200,000,000 *3% = 6,000,000 units
Total contribution = 6,000,000 units * $0.28 per unit = $1,680,000
Total overhead = $200,000
Advertising and promotion cost = $1,200,000
Total fixed cost = $200,000 +$1,200,000 = $1,400,000
Therefore net income = Contribution - fixed cost
= $1,680,000 - $1,400,000
= $280,000
Comparison - Since net profit under Plan 2 is $280,000 which is higher than the net profit under Plan 1, it is recommended to adopt Plan 2.
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