Jamie's Motor Home Sales currently sells 1,000 Class A motor homes, 2,500 Class C motor homes, and 4,000 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 950 units while the Class C campers decline to 2,200. The sales of pop-ups will not be affected. Class A motor homes sell for an average of $125,000 each. Class C homes are priced at $39,500 and the pop-ups sell for $5,000 each. The new mid-range camper will sell for $47,901. What is the erosion cost?

Question

Quizplus · Accepted Answer

Erosion cost is calculated by determining the lost revenue from decreased sales of existing products due to the introduction of a new product. For Class A motor homes, the decline is 50 units (from 1,000 to 950), at $125,000 each, resulting in a loss of $6,250,000. For Class C motor homes, the decline is 300 units (from 2,500 to 2,200), at $39,500 each, resulting in a loss of $11,850,000. The total erosion cost is the sum of these losses: $6,250,000 + $11,850,000 = $18,100,000.

Jamie's Motor Home Sales Currently Sells 1,000 Class a Motor