Question

Pisa​ Pizza, a seller of frozen​ pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $ 21 million per year. While many of these sales will be to new​ customers, Pisa Pizza estimates that 40 % will come from customers who switch to the​ new, healthier pizza instead of buying the original version. a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new​ pizza? b. Suppose that 42 % of the customers who will switch from Pisa​ Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this​ case?

Answer 1

Answer:

Part a

Incremental Sales = New Sale - Lost sales of Actual Pizza

Incremental Sales = 21,000,000 - (40% × 21,000,000)

Incremental Sales = $ 12,600,000

Thus the incremental sales connected in introducing of the new pizza is $12.6 Million.

Part b

Incremental Sales = New Sale - Lost Sales from Customer switching Brand

Incremental Sales = 21,000,000 - [42% × (40%) × (21,000,000)

Incremental Sales = 21,000,000 - 3528000

Incremental Sales = $17,472,000

Therefore, the incremental sales linked to introduce the new brand pizza in case (b) is $17.472 Million.