Pet Store - Part 1
A local pet store which has concentrated on selling puppies, is considering adding a line of pet food. A contractor estimates that is will cost $10,000 to convert some storage space into a retail area for the food. The store will purchase the specialty food for $15 and sell it for $30. Marketing research indicates that the store will sell 900 bags. Should the store add the pet food to its products and why?
Pet Store - Part 2
Assume that the store decided to add the pet food line. Two months after it began selling the food, its pet food sales declined dramatically because a competitor across the street started selling the identical food for $22 per bag. Should the store match the price offered by the competitor? Why?
We calculate the total contribution margin from the sale of bags and compare to the cost. The contribution margin is (30-15) = $15 per unit. Number of bags sold are 900. Total contribution ...
The solution explains how to determine if a new line of pet food should be added and the pricing.