Question

Currently, GH Co. sells 42,600 handbags annually at an average price of $149 each. It is considering adding a lower-priced line of handbags that sell for $79 each. The firm estimates it can sell 21,000 of the lower-priced handbags but expects to sell 7,200 less of the higher-priced handbags by doing so. What is the amount of the annual sales that should be used when evaluating the addition of the lower-priced handbags?

Answer 1

Answer:

Incremental sales= $586,100

Explanation:

Giving the following information:

It is considering adding a lower-priced line of handbags that sell for $79 each. The firm estimates it can sell 21,000 of the lower-priced handbags but expects to sell 7,200 less of the higher-priced handbags by doing so.

We need to consider not only the incremental sales of the lower-priced but also the decrease in the higher-priced handbags.

Low-priced= 21,000*79= $1,659,000

Canibalized sales= 7,200*149=(1,072,900)

Incremental sales= $586,100