Question

P10-2 Relevant Cash Flows (LO1] Winnebagel Corp. currently sells 39,000 motor homes per year at $58,500 each, and 15,600 luxury motor coaches per year at $110,500 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 24,700 of these campers per year at $15,600 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 5,850 units per year, and reduce the sales of its motor coaches by 1,170 units per year. Required: What is the amount to use as the annual sales figure when evaluating this project? Note: first calculate the sales of the new products, then add any incremental sales for the existing products and subtract any decrease in sales of the existing products.

Answer 1

While calculating annual sales figure,only those sales figure will be considered which are affected because of this project.

Hence ,Annual sales figure while evaluating this project

=Sales of new portable camper + Increment in sales of motor homes - Reduction in sales of motor coaches

=24700*15600 + 5850*58500 - 1170*110500

=$ 598260000