Winnebagel Corp. currently sells 15,000 motor homes per year at $22,500 each, an

Question

Winnebagel Corp. currently sells 15,000 motor homes per year at $22,500 each, and 6,000 luxury motor coaches per year at $42,500 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 9,500 of these campers per year at $6,000 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 2,250 units per year, and reduce the sales of its motor coaches by 450 units per year.

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

Explanation / Answer

In the problem company is selling currently two products. They are Motor Homes and Luxury coach. It is planning to sale a new portable campers. This new sale will reduce the sale of Luxury coach and increase the sale of Motor Homes. Both this facts shoild be included in assesssing the justification of this new introduction.

Thus company will consider total sale value of new car introduced. With this figure it will add extra sale value of Motor homes. Then it will reduce the figure by considering the decrease in the sale of luxury coach. Thus total sale to be recognized for decision making is as follows-

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Result: Amount to be used as sales figure of this new product is $88,500,000

Note that unchanged sales quantity of existing two product is immaterial here. It will not affect the decision making.

Type Quantity Rate Amount 1. Motor homes 2,250 $22,500 $50,625,000 2. Luxury Coach 450 $42,500 $19,125,000 3. New portable Campers 9,500 $6,000 $57,000,000 4. Total sale (1+3-2) $88,500,000

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