Question

A firm currently sells $1,500,000 annually of an expensive product line. That firm is considering a similar, less expensive, discount line, and projects sales of $300,000. The discount line is expected to reduce sales of the expensive product line to $1,320,000. What is the incremental revenue associated with the discount product line?

Answer 1

$120,000

Step-by-step explanation:

Calculation to determine the incremental revenue associated with the discount product line

First step is to calculate the lost revenue due to erosion

Lost revenue due to erosion=$1,500,000-$1,320,000

Lost revenue due to erosion=$180,000

Now let calculate the Incremental revenue

Using this formula

Incremental revenue=Discount line revenue -Lost revenue due to erosion

Let plug in the formula

Incremental revenue=$300,000-$180,000

Incremental revenue = $120,000

Therefore the incremental revenue associated with the discount product line is $120,000