Question

In the last year, Bakers Score's Donuts and Sweets has sold, on average, 1,000 "Fudgie" brownies per week. This week they introduced fat-free brownies and sold 200 at a price of 3.84 each. They noticed the cannibilization rateo f fat - free brownies on Fudgiebrownies was 483.28, with a variable cost of 1.38. The new fat - Free brownies have variable cost of f 1.66.

What is the effective unit margin ($) including the impact of cannibalization for Fat-Free Brownies, assuming the original estimate of cannibalization?

Answer 1

The effective unit margin for Fat-Free Brownies, including the impact of cannibalization, is approximately -$794.37.

Step-by-step explanation:

To calculate the effective unit margin including the impact of cannibalization for the Fat-Free Brownies, we need to consider the original estimate of cannibalization and the variable costs for both the Fat-Free Brownies and the Fudgie brownies.

The effective unit margin can be calculated using the formula:

Effective Unit Margin = (Price - Variable Cost) * (1 - Cannibalization Rate)

Given the information provided, the price of the Fat-Free Brownies is $3.84, the variable cost for the Fat-Free Brownies is $1.66, and the cannibalization rate is 483.28. Plugging in these values into the formula gives us:

Effective Unit Margin = (3.84 - 1.66) * (1 - 483.28)

Performing the calculations, we find that the effective unit margin for Fat-Free Brownies, including the impact of cannibalization, is approximately -$794.37.