Question

The Variable Speed Company manufactures a line of high quality tools. The company sold 1,000,000 hammers at a price of $4 per unit last year. The company estimates that this volume represents a 20% share of the current hammers market. The market is expected to increase by 5%. Marketing specialists have determined that, as a result of a new advertising campaign and packaging, the company will increase its share of this larger market to 24%. Due to changes in prices, the new price for the hammer will be $4.30 per unit. This new price is expected to be in line with the competition and have no effect on the volume estimates. What are the estimated sales revenues in the coming year

Answer 1

The estimated sales revenue for the coming year is $5,418,000.00

Step-by-step explanation:

Quantity sold initially 1,000,000

initial total market share =1,000,000/20%

initial market total market share=5,000,000 hammers

new total market share=5,000,000*(1+5%)

=5,000,000*(1+0.05)

=5,000,000*1.05

=5,250,000

Variable speed new share of market is 24%

market share in units=24%*5,250,000=1,260,000

Estimate sales revenue=variable market share*new unit price

new unit price is $4.30

estimated sales revenue=1,260,000*$4.30=$5,418,000.00

Answer 2

Estimated sales revenue next year =$ 5,418,000.

Step-by-step explanation:

Current market size = Company share/percentage of market share

= 1,000,000./0.2

=5,000,000 units

New market size with 5% increase

= 105%× current market size

=105% × 5,000,000

=5,250,000 units

Company new if it will now accounts for 24% of the market size

Company new market share = 24% × New market size

= 24%× 5,250,000

= 1,260,000 units

Estimated sales revenue next year

= Price per unit × new market share

= $4.30 per unit. × 1,260,000

=$ 5,418,000.0