Question

Delta Sonic, a chain of full service automotive detailers, is considering introducing a new 15-minute car wash and wax service at one of its locations. The firm expects that sales from the new 15-minute service will be $175,000 per year. Delta Sonic currently offers a 1-hour wash/wax/detail service with annual sales of $90,000. While many of the 15-minute sales will be to new customers, Delta Sonic estimates that 40 % of their 1-hour customers will switch and use the 15-minute service. The level of incremental sales associated with introducing the new 15-minute wash/wax service is closest to $139,000 $85,000 Ob. $70,000 c. Od. $175,000 $36,000 e.

Answer 1

Incremental sales=Sales of new service-Switching % from old service*Sales of old service=175000-40%*90000
=139000