## (Solution Download) 1 Because of rising costs Frito Lay s contribution margin has

1. Because of rising costs, Frito-Lay?s contribution margin has decreased to 30 percent. Refer to Appendix 2, Marketing by the Numbers, and calculate the contribution per ounce Frito-Lay realizes if it sells a 12-ounce bag of chips to resellers for \$3.00 per bag. What is the contribution per ounce if Frito-Lay reduces the package size to 10 ounces but does not change the price?
2. What price per 12-ounce bag would Frito-Lay have to charge in order to realize the same contribution per ounce as reducing the package size without changing price?

Have you noticed that you?re getting fewer chips in a bag of Lay?s potato chips? Or less ice cream in a tub of Breyer?s ice cream? Well, that?s because you are. Frito-Lay cut the number of chips in bags and some 12-ounce bags are now 10 ounces. And the traditional half-gallon tub (that is, two quarts) of Breyer?s ice cream is now 1.75 quarts and soon to be 1.5 quarts. All for the same price! Several consumer-packaged goods manufacturers are using this tactic instead of raising prices in the face of rising costs. Normally, manufacturers would just raise prices, but right now consumers are very price sensitive.

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