Question

Sabert manufactures the Mosaïc® line of heavyweight plastic cutlery. Colored a distinctive silver, Mosaïc’s® products allow one to “entertain with more style.” Currently, Sabert offers two “combo” assortments: (1) 32-piece (16 forks, 8 knives, 8 spoons); (2) 80-piece (40 forks, 20 knives, 20 spoons). Sabert sells the 32-piece pack for $2.80 and the 80-piece pack for $5.79. It costs Sabert $0.61 to manufacture the 32-piece pack and $1.17 to manufacture the 80-piece pack. H-E-B, a Texas-based supermarket chain, sells both sizes of the Mosaïc® cutlery. H-E-B estimates that in 2012 they will buy 247,600 units of the 32-piece pack and 198,300 units of the 80-piece pack. However, in response to customer feedback, H-E-B has asked Sabert to consider producing a third combo pack exclusively for H-E-B. The proposed combo would be a 56-piece (24 forks, 16 knives, 16 spoons), selling to H-E-B for $4.05 and costing Sabert $0.87 to manufacture. H-E-B has shared some market analysis information with Sabert (to support their request). Sabert marketing analysts have concluded that if they provide the new combo pack they will sell 202,100 units to H-E-B. But they estimate that only 8% of those unit sales will be new sales. Sixty-two percent of the new product’s sales will come from the 80-piece pack and the remaining 30% will come from the 32-piece pack.

(b)  If the 56-piece combo pack is introduced in 2012, what will be the incremental contribution (IC) to the product line?

Answer 1

Total contribution without considering New combo pack:-
Combo	32	80
Contirbution per Unit	2.19	4.62
Unit to be sold	2,47,600	1,98,300
Contibution	5,42,244	9,16,146
Total Contibution	14,58,390
Total contribution after considering New combo pack:-
Combo	32	80	56
Contirbution per Unit	2.19	4.62	3.18
Unit to be sold	1,86,970	72,998	2,02,100
Contibution	4,09,464	3,37,251	6,42,678
Total Contibution	13,89,393
The incremental contribution (IC) to the product line:-
Incremental Contribution	-68,997
There will be reduction in overall contribution by 68,997 with introduction of new combo pack.