Question

Bubbly Waters currently sells 350 Class A spas, 500 Class C spas, and 250 deluxe model spas each year. The firm is considering adding a mid-class spa and expects that if it does, it can sell 425 units per year. However, if the new spa is added, Class A sales are expected to decline to 250 units while the Class C sales are expected to increase to 525. The sales of the deluxe model will not be affected. Class A spas sell for an average of $12,900 each. Class C spas are priced at $6,500 and the deluxe models sell for $17,500 each. The new mid-range spa will sell for $8,500. What annual sales figure should you use in your analysis? A. $3,612,50 B. $5.065,000 C. $2.485.000 D. $1127,500 E. $4,740,000

Answer 1

The relevant annual sales figure to use in the analysis is the increase attributed to the introduction of the new mid-class spa. By subtracting the current annual sales from the expected new annual sales, we determine that the increase is $2,485,000, which corresponds to option C.

Step-by-step explanation:

The student is seeking help with a business-related question that involves calculating the expected annual sales for the different categories of spas sold by Bubbly Waters, including the impact of adding a new product to their lineup. To determine the correct annual sales figure, we need to calculate the sales figures based on the provided unit sales and unit prices before and after the addition of the mid-class spa.

• Current annual sales without the new spa:
  (350 units of Class A x $12,900) + (500 units of Class C x $6,500) + (250 units of Deluxe x $17,500) =
  ($4,515,000 + $3,250,000 + $4,375,000) = $12,140,000
• Expected annual sales with the new spa:
  (250 units of Class A x $12,900) + (525 units of Class C x $6,500) + (425 units of Mid-class x $8,500) + (250 units of Deluxe x $17,500) =
  ($3,225,000 + $3,412,500 + $3,612,500 + $4,375,000) = $14,625,000

However, the question asks for the annual sales figure to use in the analysis, which often means the change in sales after introducing the new spa. Therefore:

• New annual sales ($14,625,000) - Current annual sales without new spa ($12,140,000) = $2,485,000

The relevant annual sales figure to be used in the analysis would be the increase in sales due to the introduction of the new spa which totals $2,485,000. This aligns with option C on the list provided.