Larson, Inc., manufactures backpacks. Last year, it sold 108,500 of its basic model for $20 per unit. The company estimates that this volume represents a 35 percent share of the current market. The market is expected to increase by 20 percent next year. Marketing specialists have determined that as a result of new competition, the company’s market share will fall to 30 percent (of this larger market). Due to changes in prices, the new price for the backpacks will be $17 per unit. This new price is expected to be in line with the competition and have no effect on the volume estimates.
Estimate Larson’s sales revenues from this model of backpack for the coming year.
Market size for Last Year = Unit Sales / Market Share = 108,500 / 35% = 310,000. Market size for Next Year = (Market size for last year) + (Market size for last year x 20%) = 310,000 + 310,000 x 20% = 310,000 + 62,000 = 372,000. Company share = Market size for next year x market share next year = 372,000 x 30% = 111,600. Sales Revenue = Units sold next year x selling price per unit = 111,600 x $17 = $1,897,200. Estimate Larson’s sales revenues from this model of backpack for the coming year = $1,897,200.
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