Skin-Tique Corporation

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For forecast C the net new sales volume is found by multiplying the net new volume of 800,000 times the contribution/ounce of $0.175 (10 ounce aerosol) to get $140,000. The cannibalized volume for forecast C is 1,845,174, which is then multiplied by the difference in contribution/ ounce between the 5 ½ ounce in a tube and the 10 ounce in an aerosol to get $171,027.05. The net new sales volume for forecast C is the difference between $140,000 and $171,027.05, which comes to $31,027.

For forecast D the net new sales volume is found by multiplying the net new volume of 1,500,000 times the contribution/ounce of $0.175 (10 ounce aerosol) to get $262,500. The cannibalized volume for forecast D is 1,145,174, which is then multiplies by the difference in contribution/ounce between the 5 ½ ounce in a tube and the 10 ounce in an aerosol to get $112,227.05. The net new sales volume for forecast D is the difference between $262,500 and $112,227.05, which comes to $150,273.

The last step in calculations will be finding the expected monetary value for both sizes of aerosol containers for both low profitability (0.3) and high profitability (0.7). To calculate the EMV for the 5 ½ ounce aerosol container you must multiply the net new sales volume for forecast A, $55,003, by 0.3 profitability to get $16,500.9. Then multiply the net new sales volume for forecast B, $105,203, by 0.7 profitability to get $73,642.1. Add those two totals to get an EMV of $90,143. To calculate the EMV for the 10 ounce aerosol container you must multiply the net new sales volume for forecast C, $31,027, by the 0.3 profitability to get $9,308.1. Then multiply the net new sales volume forecast D, $150,273, by 0.7 profitability to get $105,191.1. Add those two totals to get an EMV of $95,883. This shows if they go with the 5 ½ ounce aerosol they would gain a profit of approximately $5,000. The third option was to do a test market which would cost $40,000 in all including the set-up charge, which is more than the calculated EMV. This means that the second option is much cheaper and seems as though the option 2 the combination is the best decision for the company.