Question

Cool Comfort currently sells 340 Class A spas, 465 Class C spas, and 125 deluxe model spas each year. The firm is considering adding a mid-class spa and expects that, if it does, it can sell 360 of them. However, if the new spa is added, Class A sales are expected to decline to 235 units while the Class C sales are expected to decline to 275 units. The sales of the deluxe model will not be affected. Class A spas sell for an average of $10,700 each. Class C spas are priced at $18,700 and the deluxe model sells for $27,000 each. The new mid-range spa will sell for $13,500. What is the value of the erosion effect

Answer 1

Answer:

$4,676,500

Explanation:

According to the scenario, computation of the given data are as follows:-

Sales = Sale Units × Average Sale Per Unit

Current Sales of Spa Class A = 340 × $10,700 = $3,638,000

Expected Decline Sales of Spa Class A = 235 × $10,700 = $2,514,500

Sales Loss = Current Sales of Spa - Expected Decline Sales Of Spa

Class A Sales Loss = $3,638,000 - $2,514,500 = $1,123,500

Current Sales of Spa Class C = 465 × $18,700 = $8,695,500

Expected Decline Sales of Spa Class C = 275 × $18,700 = $5,142,500

Class C Sales Loss = $3,553,000

Value of The Erosion Effect = Class A Sales Loss + Class C Sales Loss

= $1,123,500 + $3,553,000

= $4,676,500