Question

Winnebagel Corp. currently sells 39,000 motor homes per year at $58,500 each, and 15,600 luxury motor coaches per year at $110,500 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 24,700 of these campers per year at $15,600 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 5,850 units per year, and reduce the sales of its motor coaches by 1,170 units per year. |

Required : |

What is the amount to use as the annual sales figure when evaluating this project? |

Answer #1

Sales due solely to the new product line are:

24,700 ($15,600) = $385,320,000

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

5,850 ($58,500) = $342,225,000 in new sales is relevant.

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

1,170 ($110,500) = $129,285,000 loss in sales is relevant.

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

$385,320,000 + 342,225,000 – 129,285,000 = $598,260,000

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