Walks Softly,Inc.sells customized shoes.Currently,they sell 10,000 pairs of shoes annually at an average price of $68 a pair.The company is considering adding a lower-priced line of shoes which sell for $49 a pair.Walks Softly estimates they can sell 5,000 pairs of the lower-priced shoes but will sell 1,000 less pairs of the higher-priced shoes by doing so.What is the amount of the sales that should be used when evaluating the addition of the lower-priced shoes?

Question

Quizplus · Accepted Answer

The amount of sales that should be used when evaluating the addition of the lower-priced shoes is the incremental sales that would be generated by the new product. In this case, the incremental sales would be the sales of the lower-priced shoes minus the lost sales of the higher-priced shoes. The sales of the lower-priced shoes would be 5,000 pairs * $49 per pair = $245,000. The lost sales of the higher-priced shoes would be 1,000 pairs * $68 per pair = $68,000. Therefore, the incremental sales would be $245,000 - $68,000 = $177,000.