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 $47,900. What is the erosion cost?

Question

Quizplus · Accepted Answer

To calculate the erosion cost, we need to find the difference between the revenue before and after introducing the mid-range camper.

Revenue before = (1,000 x $125,000) + (2,500 x $39,500) + (4,000 x $5,000) = $512,500,000

Revenue after = (950 x $125,000) + (2,200 x $39,500) + (4,000 x $5,000) + (1,500 x $47,900) = $494,400,000

Erosion cost = Revenue before - Revenue after = $512,500,000 - $494,400,000 = $18,100,000

Therefore, the best choice is B, with an erosion cost of $18,100,000.

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