Question

Winnebagel Corp. currently sells 22,592 motor homes per year at $66,239 each and 10,962 luxury motor coaches per year at $104,320 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 29,891 of these campers per year at $12,385 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 = 29,891 * $12,385 = $370,200,035

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

2,400 * $66,239 = $158,973,600

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

1,100 * $104,320 = $114,752,000 loss in sales

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

Net sales = $370,200,035 + $158,973,600 - $114,752,000

Net sales = $414,421,635