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22 April, 15:56

Turkey Hill Motor Homes currently sells 1,200 Class A motor homes, 2,600 Class C motor homes, and 4,000 pop-up trailers each year. It is considering adding a mid-range camper and expects that if it does so the firm can sell 1,500 of them. However, if the new camper is added, the firm expects its Class A sales to decline by 10 percent while the Class C camper sales decline to 2,100 units. The sales of pop-ups will not be affected. Class A motor homes sell for an average of $162,000 each. Class C homes are priced at $59,500 and the pop-ups sell for $5,500 each. The new mid-range camper will sell for $32,900. What is the erosion cost?

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  1. 22 April, 17:54
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    The erosion cost = $ 49,190,000

    Explanation:

    Given:

    Class A motor homes sold = 1,200

    Class C motor homes sold = 2,600

    pop-up trailers sold = 4,000

    if the new camper is added,

    decline in class A sales = 10%

    Decline in class C sales = 2,100 units

    Average cost of class A motor homes = $ 162,000

    Average cost of class C homes = $ 59,500

    Selling price for the pop-ups = $ 5,500

    cost of the new mid-range camper = $ 32,900

    Now,

    Erosion cost is given as = Total decline in revenue from the sales

    = (Decline in class A sales * Average cost of class A motor homes) + (Decline in class C sales * Average cost of class C motor homes)

    Erosion cost = (0.10 * 1,200 * $ 162,000) + ((2,600 - 2,100) * $ 59,500)

    or

    Erosion cost = 19,440,000 + 29,750,000

    or

    The erosion cost = $ 49,190,000
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