Question

Winnebagel Corp. currently sells 29,775 motor homes per year at $68,576 each and 9,346 luxury motor coaches per year at $101,773 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 24,090 of these campers per year at $12,527 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 2,400 units per year and reduce the sales of its motor coaches by 1,100 units per year. What is the amount to use as the annual sales figure when evaluating this project? Topic: Incremental Cash Flows

Answer 1

Sales due solely to the new product line = 24,090 * $12,527 = $301,775,430

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

2,400 * $68,576 = $164,582,400

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

1,100 * $101,773 = $111,950,300 loss in sales

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

Net sales = $301,775,430 + $164,582,400 - $111,950,300

Net sales = $354,407,530