Taste Good Chocolates develops a new candy bar and plans to sell each bar for $1.Taste Good predicts that 1 million candy bars will be sold in the first year if the new candy bar is produced and sold,and includes $1 million of incremental revenues in its capital budgeting analysis.A senior executive in the company believes that 1 million candy bars will be sold,but lowers the estimate of incremental revenue to $700,000.What would explain this change?

Question

Quizplus · Accepted Answer

Cannibalization of 300,000 of Taste Good Chocolates' other candy bars would result in a decrease in incremental revenue as some of the sales of the new candy bar would come at the expense of sales of the company's other candy bars.

Taste Good Chocolates Develops a New Candy Bar and Plans