Elite Design, Inc. sells customized handbags. Currently, they sell 30,000 handbags annually at an average price of $79 each. They are considering adding a lower-priced line of handbags which sell
For $45 each. Elite Design estimates they can sell 12,000 of the lower-priced handbags but will sell
4,000 less of the higher-priced handbags by doing so. What is the amount of the sales that should
Be used when evaluating the addition of the lower-priced handbags?

Question

Quizplus · Accepted Answer

The correct answer is A because the sales that should be used when evaluating the addition of the lower-priced handbags is the incremental sales, which is the difference between the sales with the lower-priced handbags and the sales without the lower-priced handbags. The sales with the lower-priced handbags are $45 * 12,000 = $540,000, and the sales without the lower-priced handbags are $79 * 30,000 = $2,370,000. Therefore, the incremental sales are $540,000 - $2,370,000 = -$1,830,000. However, since the question asks for the amount of sales, we take the absolute value of the incremental sales, which is $1,830,000.