Question

Jamie's Motor Home Sales currently sells 1,100 Class A motor homes, 2,200 Class C motor homes, and 2,800 pop-up trailers each year. Jamie is considering adding a mid-range camper and expects that if she does so she can sell 1,500 of them. However, if the new camper is added, Jamie expects that her Class A sales will decline to 850 units while the Class C camper sales decline to 2,000. The sales of pop-ups will not be affected. Class A motor homes sell for an average of $140,000 each. Class C homes are priced at $59,500 and the pop-ups sell for $5,000 each. The new mid-range camper will sell for $42,900. What is the erosion cost of adding the mid-range camper

Answer 1

Answer:

$46,900,000

Explanation:

Calculation for the erosion cost of adding the mid-range camper

Erosion cost = [(1,100 - 850) × $140,000] + [(2,200 -2,000) × $59,500]

Erosion cost =(250×$140,000)+(200×$59,500)

Erosion cost =$35,000,000+$11,900,000

Erosion cost = $46,900,000

Therefore the erosion cost of adding the mid-range camper will be $46,900,000