Winnebagel Corp. currently sells 28,000 motor homes per year at $73,000 each and

Question

Winnebagel Corp. currently sells 28,000 motor homes per year at $73,000 each and 7,000 luxury motor coaches at $115,000 each. The company would like to introduce a new portable camper that is expected to sell for $19,000 each and they think they can sell 23,000 units per year. A consultant has told them that introducing the new camper will boost sales of motor homes by 2,600 but reduce sales of the luxury motor coaches by 850 per year. What is the relevant figure to use for annual sales in this example? (work would be helpful, thanks)

Explanation / Answer

Sales due solely to the new product line are:

23,000 ($7,000) = $161,000,000

Increased sales of the motor home line occur because of the new product line introduction; thus:

2,600 ($$73,000) = $189,800,000 in new sales is relevant

Erosion of luxury motor coach sales is also due to the new mid-size campers; thus

: 850 ($115,000) = $97,750,000 loss in sales is relevant.

The net sales figure to use in evaluating the new line is thus:

$161,000,000+ 189,800,000 – 97,750,000 = $253050000

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