The Sledge Hammer Company manufactures a line of high quality tools. The company

Question

The Sledge Hammer Company manufactures a line of high quality tools. The company sold 1,000,000
hammers at a price of $4 per unit last year. The company estimates that this volume represents a 20%
share of the current hammers market. The market is expected to increase by 5%. Marketing specialists
have determined that, as a result of a new advertising campaign and packaging, the company will
increase its share of this larger market to 24%. Due to changes in prices, the new price for the hammer
will be $4.30 per unit. This new price is expected to be in line with the competition and have no effect
on the volume estimates. What are the estimated sales revenues in the coming year?

Explanation / Answer

Present sales volume of hammers 1,000,000 Market share % 20% Present market Volume (1000,000/20%) 5000000 Add: Increase in Share@5% 250000 Expected New market volume 5250000 Expected % share of firm 24% Expected sales volume of firm (5250,000*24%) 1260000 Expected Selling price per unit 4.3 Budgeted sales revenue $5,418,000

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