Question

Food For Less (FFL), a grocery store, is considering offering one hour photo developing in their store. The firm expects that sales from the new one hour machine will be $150,000 per year. FFL currently offers overnight film processing with annual sales of $100,000. While many of the one hour photo sales will be to new customers, FFL estimates that 60% of their current overnight photo customers will switch and use the one hour service. The level of incremental sales associated with introducing the new one hour photo service is closest to:
A) $139,000
B) $175,000C) $36,000
D) $70,000

Answer 1

Answer:

D.- 90,000 incremental sales revenues is closest to 70,000

Explanation:

the revenue for his new machine is 150,000 However, the revenues on his overnight film processing will decrease by 60%

Overnight film processing decreases:

100,000 x 60% = 60000 decrease in revenue

Net Effect: 150,000 - 60,00 = 90,000

Sales will increase by 90,000 Is important to notice we are asked for which is closest. Not the exact answer. We can conclude from the options that 70,000 is the closest option.