Question

Larson, Inc., manufactures backpacks. Last year, it sold 108,500 of its basic model for $20 per...

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.

Required:

Estimate Larson’s sales revenues from this model of backpack for the coming year.

Sales Revenue:

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Answer #1

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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